Green Energy Corridor to propel near-term demand
Transmission infrastructure for renewable installations is a key area which has to improve in proportion to the impressive goals set for renewable capacity expansion. Evacuation infrastructure for solar and wind has been a big hurdle and we believe investments in this segment have to keep pace with the growth in generation. There is slowdown in new orders from Power Grid in the last couple of years; however, some of the state government orders have picked up offsetting this to a large extent. We believe the focus towards creating an efficient and robust evacuation to support scale up of renewable energy will boost the near-term demand under domestic transmission. We maintain BUY rating on Kalpataru Power, GET&D and Techno Electric and ADD on KEC.
* Green Energy Corridor to boost near-term growth – Power Grid is already constructing the interstate transmission network to connect renewable rich states (GEC–I). GEC-II will be connecting six solar parks in Andhra Pradesh, Madhya Pradesh, Karnataka, Rajasthan and Gujarat. Around Rs150bn worth of projects have been recently awarded under GEC-II, of this, Rs120bn has been awarded to private companies under the TBCB route and the rest will be executed by PGCIL.
* Encouraging opportunity pie – CEA estimates US$35bn spending under transmission from 2017-22. The total transmission scheme is envisaged to evacuate 125GW of renewable evacuation under GEC-II. 28GW under phase-I has been tendered and partly in execution, ~38.5 GW under phase-II has been approved by the CEA and ~28GW of phase-III is in the planning stage. There is another 23GW of solar project along HVDC for evacuation to be installed in LehLadakh in three phases of 7.5 GW each.
* State electricity boards to play an active role in transmission capex - Out of Rs2.6trn transmission investment outlay planned by government over 2017-22, Rs1.3trn has been allocated towards intrastate transmission capacity. Expansion in industry and infrastructure like railways, airports, oil & gas will also add to the growing demand for T&D networks across the country. Professionalisation of some SEBs like UP, Bihar etc with involvement of PGCIL as a consultancy will also boost the overall project sizes and the execution of intrastate transmission infrastructure.
* Inter-regional interconnections with SAARC – Along with India’s energy security plan, SAARC grids and regional interconnections with Bangladesh, Sri Lanka, Nepal & Bhutan are also being planned. A couple of medium-sized HVDC projects are being planned with Bangladesh and Sri Lanka connecting their grid with India.
* Financial assistance for green energy corridor – Asian Development Bank (ADB) has approved loan of US$500mn to PGCIL for the development of GEC-I, The bank is supporting the project with a financial assistance of US$1bn, of which, US$500mn is through sovereign loan. Loan agreement of Eur500mn from KfW, Germany has been signed by PGCIL for GEC-I project implementation. India and Germany had signed an agreement on technical co-operation for implementation of GEC. Additionally, KfW has also committed financing of intrastate GEC-I towards Tamil Nadu, Rajasthan, Himachal Pradesh, Gujarat and Madhya Pradesh. They are also willing to support GEC-II and GEC-III projects.
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