The power sector does not require any capital expenditure in thermal capacity until FY22, given that 40 giga watt of capacity is under construction and the current stranded capacity is 25 GW, says a report.
This situation may change only if power demand growth is higher than the current six-seven per cent and growth in renewable energy (RE) is less than the expected 175 GW by FY22, says a report by brokerage JM Financial.
The Mumbai-based brokerage, which had meetings with key officials of CERC, CEA, NTPC, PGCIL and IEX in New Delhi, said coal shortage remains the key hurdle the for the sector.
The report said the non-requirement of capex for the next three years is a negative for power equipment supplier Bhel. On the renewable energy scenario, the report said the existing power transmission network at national (ISTS) level, along with those planned, like the extension of green energy corridor, are adequate to handle up to 175GW of renewables. However, intra-state transmission capacities may need a boost up depending on each state's RE generation and absorption. Because of this, Power Grid Corporation's (PGCIL) capex may remain stagnant.
The report said load balancing to counter the sporadic nature of renewables can be absorbed till FY22, given the low utilisation (PLF) of thermal plants today. However, thermal plants will have to be more flexible to ramp up power in evening hours, once solar generation falls, on a daily basis. This can lead to gaps since many older/inefficient plants may be unable to meet required flexibility, leading to higher dependence on NTPC and private sector plants and consequently improving their PLFs.
Also, NTPC will be biggest beneficiary of the power ministrys scheme for flexible use of power given the PSU's pan-India presence and power purchase agreements with every state. The scheme seeks to optimise the cheapest power plants (plants nearest to coal source) and reduce the PLFs of expensive plants
Despite adequate thermal power and transmission capacity, coal shortage remains an issue. Even with Coal India (CIL) offtake growth improving to eight-nine per cent in the last 12 months, coal stock at power plants stagnate at seven-eight days.
This is due to a culmination of factors like: fall in coal imports; new power plant additions; and heavy rains in south India in September, which has impacted coal production. Given the pressure for higher coal supply, the brokerage expects Coal India's production/offtake growth to remain healthy in FY19-20, boosting its earnings growth.