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Power sector shares were on a roll as demand continued to improve as well as due to low availability of coal.
According to a report by India Ratings and Research, there has been some positive signs in the power sector. The energy demand in India recovered and it rose by 17.8% year-on-year to 129.4 billion units (BU) in August 2021. There was a demand recovery in major manufacturing states such as Maharashtra (21.3%), Gujarat (23.5%) and Tamil Nadu (15.1%).
In addition, the total energy demand in India demand increased marginally in the first 20 days of September 2021 to 77BU, from 76BU in September 2020, signalling a continued recovery, the report mentioned.
The total demand in India during the first five months of the fiscal year 2022 was 597BU, which was above the pre-Covid levels. In FY2021, the demand was 515 BU and in FY2020, it was 578BU.
Price Scenario
As the power demand recovered, the average short-term price at Indian Energy Exchange doubled on a yearly basis. At the exchange, the average short-term price jumped to Rs 5.06/kWh during August 2021, compared with Rs 2.43/kWh in the year-ago period, the Ind-Ra report said.
Further, the average short-term price for a day surged to Rs 9/kWh during August, and for the first 20 days of September the prices remained elevated at Rs 4.08/kWh.
The report added that electricity generation excluding renewables rose 16.8% year-on-year to 120.8BU in August 2021. As many power plants in India depends on coal to produce power, the plant load factor of coal-based power plants improved to 59.27% in August 2021, compared with 56.73% in July 2021 and 49.01% in August 2020.
Coal Supplies
The speedy recovery in power demand post the second wave of COVID-19 coupled with lower-than-adequate domestic coal production has led to the reduction in coal inventory levels at various power plants and coal requirement at many power plants have increased. Coal India is ramping up supplies to meet the power plants requirement across India.
Public sector enterprise Coal India’s supply to the power sector rose by 11.4 per cent to 38.61 million tonnes last month, according to official data showed. This increase in volumes is important as thermal power plants in the country are grappling with coal shortage. Coal India which accounts for 80% of the country’s total coal output had supplied about 34.64 million tonnes (MT) of coal in August last fiscal, according to official data.
All these factor and improved business forecast helped Coal India shares to soar 12% on Wednesday (September 29, 2021). The company re-entered the list of top-50 most valued firms by market cap on the back of heavy volume trading.
Renewable Energy Sources
Meanwhile, electricity generation from renewable sources also improved by 13.6% in August 2021 to 16.4BU, led by a 35% year-on-year improvement in the solar power generation to 5.24BU, despite a marginal 2% year-on-year decline in wind power generation to 8.75BU, according to Ind-Ra report.
Moreover, Reliance Industries has plans to invest about $10 billion in the next three years in renewable energy sector, while Adani Group has plans to invest about $20 billion in clean energy generation, component manufacturing, transmission and distribution over 10 years.
NTPC has also won 4.32 gigawatt (GW) of renewable energy bids since the last financial year. Further, it has revised its RE targets to 60 GW from 30 GW by 2030, the company’s Chairman and Managing Director Gurdeep Singh said on Tuesday at the 45th annual general meeting, in line with the government’s target of 450 GW of renewable energy (RE) capacity by 2030.
Tata Power has started to aggressively expand its electric vehicle charging network through a slew of deals and partnership with autiomobile companies and realty developers for installation of charging stations. On the technical chart, its share price has seen a breakout after about 13 years.
As the economy opens up and factories and manufacturing plants start to operate at their maximum capacity, power utility companies are bound to benefit. This will give a boost to their topline and earnings growth. In addition, if the companies are able to get the execution part right when it comes to power generation through renewable energy, their stock prices are likely to rise.
Stocks To Watch
Some of the companies to look out for in this space are as follows: Tata Power, RIL, Adani Green, Adani Power, Adani Transmission, Torrent Power, IEX, NTPC, PowerGrid.