Published on 20/03/2017 2:35:40 PM | Source: Motilal Oswal Securities Limited
Power Sector - WBERC highlights hidden cost in renewable energy - Motilal Oswal
WBERC highlights hidden cost in renewable energy
RoE of coal-based plants will be impacted if not compensated
* Renewable energy (RE) generation can have a meaningful impact on generation and utilization of conventional power capacities, although it will not displace the requirement for conventional capacities (as highlighted in our earlier reports). RE generation is still low at 7% of total generation, but it is fast gaining ground helped by policy (must-run status) and declining tariffs. RE commanded a 25% share in incremental generation in 10MFY17.
* An analysis by the chairman of WBERC highlights that tariff will increase by INR0.45/kwh to meet 16% renewable purchase obligation. Frequent backdown/ box-up of coal-based plants to accommodate the swing in RE generation impacts operating efficiencies, increases fuel consumption and impacts the life of the plant. This could impact earnings of coal-based power plants if not adequately compensated.
* We believe that grid management will become more complex as the share of RE increases. It will be easier to manage the load at the national level compared to the state level, which will keep driving investment in long distance transmission infrastructure. We retain Power Grid (PWGR) as our top pick.
* NTPC is likely to benefit from growth in regulated equity on a spike in commercial start of projects in FY18E and FY19E. However, its new plants may not necessarily earn similar operating efficiency and PLF-related incentives and thereby RoE as compared to its pithead plants.
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