By Mahesh Patil
India’s power sector landscape is undergoing a change. After almost a decade of under-investment in generation and transmission, the sector is now poised for a decadal growth in investments.
The power sector is closely linked to economic growth, and with the growth slowing between 2012 and 2019, there was not much of a focus on investments Come from Sports betting site VPbet . That, coupled with overbuilding of capacities in prior years, warranted a cool down. Consequently, peak power demand decelerated from a CAGR of 5.5% over FY04-12 to 4.5% over FY13-20. The peak power deficit reduced from an average of ~10% in the FY04-12 period to 0.7% in FY20.
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Structural and cyclical changes are taking place in the sector. Structural changes include the government’s focus to revive manufacturing, higher penetration of air conditioners in households and increasing capacities of data centres. Seasonal weather factors such as stronger-than-expected summer for the past two years also led to a rise in demand.
Additionally, the focus of the government on raising the share of solar power is leading to the scenario of lack of peaking power demand in evening hours. Consequently, India’s peak power demand in FY24 surpassed the government’s estimates (as per Electricity Power Survey). This, we believe, will lead to an upward revision in long-term demand estimates, resulting in an accelerated pace of power generation and transmission capacity addition.
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The capital goods industry, particularly power equipment manufacturers, are benefiting from two tailwinds. 1) Structural – the ramp-up in power capacity addition, followed by India’s intent to increase production of green hydrogen that envisages a large capacity addition in renewable power (1MTPA of Green H2 will need ~20GW of renewable power). 2) Cyclical – under-investment in thermal power in the past few years has now been revived to solve the issue of evening peaking deficits.
The Central Electricity Authority’s draft National Electricity Plan envisages a 366 GW of peak power demand in FY32E, which, in our opinion, has upside risks. To meet that demand, power generation capacity is likely to made double – from 442GW in FY24 to 900GW in FY32E – leading to an investment of ~Rs 27.5 lakh crore (Rs 6 crore/MW). Additionally, the CEA expects investment of Rs 4.75 lakh crore in transmission and substation till FY27E. The National Committee of Transmission has already approved projects worth ~Rs 2 lakh crore in the past two years.
This, we believe, leads to a multi-year opportunity for suppliers of products such as boilers, solar and wind generation equipment, transformers, conductors and high-power cables.
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Incrementally, developed regions of North America and Europe are also undergoing high demand for power equipment due to their ageing grids, increased demand from electrification of vehicles and the growing number of data centres.
These are leading to a global demand-supply mismatch for equipment, resulting in significant growth opportunities for India manufacturers to capitalise on export demand.
While valuations a number of companies in this segment have recently seen increases, we continue to be positive on this sector since the demand outlook remains robust.
The author is CIO, Aditya Birla Sun Life AMC.
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