Power sector finally looking up, rapid demand growth spells an opportunity

By DK Aggarwal

India’s power sector is undergoing a noteworthy change, and this has redefined the industry outlook. Demand for electricity is seeing a steady growth with a pick-up in the economy, especially manufacturing activity, as well as favorable government policy. The government has implemented various progressive measures to maximise power generation capacity and improve distribution.

India has made great steps in raising access to electricity; as more than 13 crore people joined the power grid since 2013. Also, a close look at the index of electricity showed it has been growing considerably in core sector data. Per capita electricity consumption, which was a mere 16.3 units in 1947, has increased to 1,122 units in 2016-17.


Below in the graphical representation of the various index in the core sector.

Government initiatives like 24x7 power, power to all households by March 2019 and UDAY, which has improved viability of discoms to buy more power to serve more customers and the CEC initiatives that include linking of deviation settlement mechanism (DSM) prices to DAM prices at the exchange average clearing price, have helped the sector witness robust growth.

In 2018, power demand has increased 8 per cent to 177GW. However, the coal supply chain has tightened up. On the contrary, coal-based power generation capacity in India, which currently stands at 190.29GW is expected to reach 330-441 GW by 2040.

Meanwhile, the government is hopeful of higher output next year from already allocated mines and plans to further allot 10 mines to Coal India. The government targets to increase renewable capacity to 175GW in FY22, and further to 275GW in FY27 from current 72 GW.

Moreover, the railway ministry has also decided to electrify its entire broadgauge network. In order to achieve this target, India needs to add more renewable capacity, improve fuel-supply chain for coal and gas plants and efficient utilization of existing capacity. Total installed capacity of power stations in India stood at 346.62 GW as of November 2018.

Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. Electrification is increasing with the support of the government schemes like DDUGJY (Deendayal Upadhyaya Gram Jyoti Yojana) and IPDS (Integrated Power Development Scheme). The government has also delicensed the electrical machinery industry and allowed 100 per cent foreign direct investment (FDI) in the sector.

India’s power sector is forecast to attract investments worth Rs 11.56 trillion between 2017 and 2022 in thermal, hydro, nuclear and renewable segments.

In order to further boost the sector, there is an urgent requirement for reforms relating to prioritising efficient coal allocation and delivery, promoting competition in coal and electricity supply, rationalising energy prices and using incentives to promote more efficient power generation and delivery.

Besides, other reforms already proposed such as re-designing of real-time market, ancillary services regulations and linking of DSM prices with exchanges prices, if implemented, will help absorb more renewable in the grid going forward.

India’s rapid growth over the past decade has increased power demand, which is still largely unmet. With the robust outlook of the sector, it is expected that India will see foreign participation in the development and financing of generation and transmission assets, engineering services, equipment supply and technology partnership in nuclear and clean coal technologies going forward. Going forward, NTPC, NHPC, PTC India, Torrent power and Adani Power are some of the stocks that may give good returns.

Chairman & Managing Director,SMC Investments and Advisors Limited