India’s Power Sector Set For A Surge
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Special Report, Special Report, Stories
The power sector has been one of the topperforming sectors in the Indian stock market, outpacing the broader market indices by a significant margin in recent years.
The power sector has been one of the topperforming sectors in the Indian stock market, outpacing the broader market indices by a significant margin in recent years. The NSE Energy index, which tracks the performance of major power companies, has delivered impressive returns compared to the benchmark Nifty 50 index. Over the last year, NSE Energy has outperformed Nifty 50 by a wide margin.
While BSE Sensex has generated returns of around 16 per cent, the BSE Power index has surged by a staggering 88 per cent during the same period. This outperformance can be attributed to several factors, including the government’s focus on improving the power sector’s efficiency, the increasing adoption of renewable energy, and the growing demand for electricity across various sectors of the economy.
Sector Landscape
India’s installed power capacity has grown exponentially, reaching 441.96 GW as of March 2024. However, India has set an ambitious goal of achieving 777 GW of installed capacity by 2030, where 500 GW will be derived from non-fossil fuel sources. Currently, fossil fuel sources account for 55 per cent of the total installed capacity, while the balance 45 per cent is from non-fossil fuel sources. The detailed source mix breakdown of the current installed capacity can be understood through the following pie chart.
Renewable Energy Surge
Renewable energy has taken centre-stage in India’s power sector, where renewable sources of energy are expected to contribute around 65 per cent of the total installed capacity by 2030 from the current level of 45.75 per cent of the total capacity. Currently, solar is leading the charge in the renewable space. Solar power monthly generation has grown from just 8,338.2 MU in March 2022 to 12,225.8 MU in March 2024, making India one of the world’s largest solar markets.
Solar Shortfall
A peak shortage of 14 GW is forecast in June during night time hours when solar capacity is offline, according to the Central Electricity Authority, the country’s planning body for the power sector. This emphasises the need for grid flexibility and demand management strategies. Traditional energy sources like coal remain crucial in meeting India’s growing electricity demand, especially during non-solar hours when solar generation is offline.
Coal Gasification
While India aims for an energy transition from traditional sources to renewable sources of energy, it also has to meet the ever-increasing energy demands of the country. As India is the second-largest producer of coal in the world, the government is also open to utilising its fossil resources in greener ways. Recently, the Union Budget approved ₹8,500 crore for an incentive scheme to promote and develop coal gasification. The government is expected to gasify 100 million tonnes of coal by 2030.
Recent Government Schemes
1) Revamped Distribution Sector Scheme (RDSS) The scheme focuses on reducing aggregate technical and commercial losses (ATC) and eliminating the average cost of supply. The average revenue realised gap by 2024-25. The ATC losses in the power sector represent the gap between energy supplied and revenue collected, encompassing technical and commercial losses. Technical losses stem from infrastructure limitations, while commercial losses result from human factors like meter tampering. The key components of the RDSS include financial support for prepaid smart metering, system metering, and distribution infrastructure upgrades.
2) PM Surya Ghar — The scheme aims to install rooftop solar panels in one crore households across India. With an investment of over ₹75,000 crore, the scheme seeks to provide up to 300 kWh of free electricity per month to each household, promoting sustainable development and financial relief through solar cost savings and environmental impact reduction.
Private Sector Participation — As of March 2024, the total installed power capacity in India stood at 441,969.6 MW. Two years ago, it was 396,962 MW, with the majority of the capacity owned by the public sector. However, the private sector players now have a higher installed capacity compared to the public sector. The market share of the total installed capacity owned by the private sector increased from 48.97 per cent to 52.01 per cent. We believe this trend is secular and likely to continue in the future.
Capital Expenditure Plans
Most of the major players in the power sector have grand capex plans in the pipeline. Tata Power has planned for a 66 per cent higher capex of ₹20,000 crore in FY25, with 50 per cent allocated to renewable energy projects. The company aims to have 70 per cent of its capacity from non-fossil fuels by 2030. NTPC Group has budgeted ₹27,104 crore of capex for the current year, with plans to increase it by 30-40 per cent in the next year. Hitachi Energy has invested heavily in India in the last 3-4 years, opening new factories, technology centres and innovation centres.
The company expects its capex to sustain in the coming years at around ₹100 crore per year for greenfield and brownfield expansions as well as talent costs. Power Grid Corporation has outlined ₹1.16 lakh crore for inter-state transmission projects by 2032, allocating ₹37,000 crore for intra-state projects, ₹10,000 crore for cross-border power trade and ₹7,500 crore for international ventures. Additionally, investments of ₹15,000 crore are planned for smart metering infrastructure, ₹1,000 crore for solar power projects, and another ₹1,000 crore for data centres through its subsidiary. For the current fiscal year 2023-24, Power Grid Corporation’s capex target stands at ₹8,800 crore, potentially increasing to ₹10,000 crore due to new project acquisitions.
Conclusion
Investing in India’s power and energy sector presents a compelling opportunity for investors. With robust demand growth, supportive government policies and a strong focus on renewable energy, the sector is poised for significant expansion. As the world’s third-largest energy market, India’s energy needs are expected to double by 2050, driving explosive growth and potentially transforming the country from an energy importer to an exporter, particularly in renewable energy. This shift offers long-term investment prospects for those looking to capitalise on India’s energy boom. Moreover, as India emerges as the world’s third-largest economy, its energy consumption is expected to rise in tandem.
This will create robust investment opportunities across various energy segments. India’s commitment to global green energy goals, exemplified by initiatives like the International Solar Alliance and International Bioenergy Alliance, underscores its dedication to a sustainable future. Furthermore, with the global shift towards cleaner energy sources, India’s competitive edge and potential as a China+1 manufacturing hub make it an attractive destination for investment in the solar and hydrogen value chains, offering diversified opportunities for investors.