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Efforts towards reaching 500GW of non-fossil fuel based installed capacity by CY30, as well as setting up more conventional capacity to cater to the expected doubling of power demand by the same year is expected result in a capex super cycle in the power sector over the next decade. In generation segment, CEA estimates capex of Rs14.3trn over FY23-27 and Rs31.4trn over FY23-32, which is more than double the capex for FY18-22. Further, we expect substantial pick up in awarding of transmission projects going forward to cater to the high RE capacity addition. Other segments of the power sector, including distribution, smart metering, storage (battery and hydro) solar manufacturing, among others, are also expected to see significant capex over the near term and the next decade. Recent capacity addition has been mostly RE, with 6.2GW capacity added in 5MFY23 (98.7% of the total 6.3GW capacity addition) of which 5.3GW was solar. As of Aug’22-end, >100GW capacity is under construction/implementation including 27.6GW of thermal, 12.9GW of hydro, and >61GW of RE. Further, 9 th NCT proposes implementation of Rs144bn worth of new transmission schemes, while MoP plans to implement additional 233GW worth of transmission capacity up to CY30. Top picks: NTPC, NHPC, Tata Power.

* >100GW of generation capacity (ex-nuclear) is currently under construction/ implementation: As of Aug’22-end, 27.6GW of thermal capacity is under construction, with cumulative cost of Rs2.3trn (~Rs1.5trn already spent). Of this, 11.9GW is being developed by CPSUs and balance 15.6GW by the state PSUs. No thermal capacity is currently being developed by the private sector. However, several large private sector conglomerates have recently shown keen interest in acquiring stressed thermal plants. We expect coal (plus lignite) capacity at ~230GW by FY25E. In hydro, 12.9GW is under construction (cumulative cost is Rs1.2trn). Of this, 9GW is being constructed by CPSUs (cumulative cost Rs773bn). Among listed private sector companies, only JSWEL’s Kutehr HEP is currently under construction. In 5MFY23, 6.2GW of RE capacity was installed (98.7% of the total 6.3GW capacity addition) of which 5.3GW was solar. >61GW of RE capacity is currently under implementation, including 48.7GW of solar capacity under implementation. We expect annual RE installation to increase to 17-19GW in FY23 and >20GW in FY24 from 15.5GW in FY22. Key listed beneficiaries include NTPC and NHPC among PSUs, and Tata Power, JSW Energy and Torrent Power among private companies.

* 9 th NCT proposes Rs144bn worth of new transmission schemes; further 233GW worth of transmission capacity planned to be implemented up to CY30: As per the agenda of the 9th National Committee on Transmission (NCT), new schemes totalling Rs144bn have been proposed to be implemented. By FY27, transmission system for integrating 52GW of additional RE capacity have been planned. However, as India’s 500GW non-fossil fuel installed capacity target will require advance planning for additional transmission capacity, MoP has proposed to implement 181.5GW of additional transmission systems by CY30 in a phased manner. We expect most of the projects to be implemented through TBCB mode. Key beneficiaries include PGCIL.

* India’s power demand increases YoY, driving high thermal PLFs: On YoY basis, allIndia daily energy/peak demand is higher by an average of 11.4%/10.3% during H1FY23, averaging 4,339MU/190.8GW. The highest daily energy demand was clocked on 29th Apr’22 at 4,792MU (6.3% higher vs 4,507MU clocked on 7th Jul’21). In terms of daily peak, in FY23, maximum daily peak demand was 216GW (6.3% higher YoY). This has resulted in high thermal generation, with H1FY23 PLFs increasing 654bps YoY to 64.5%. For the first 15 days of Oct’22, peak demand has averaged 176.5GW (4% higher YoY). PLFs for both solar and wind capacities have also been higher during H1FY23 vs FY22, increasing by 280bps and 790bps to 18.3% and 27.3% respectively. In H1FY23, while solar generation has increased by 39% YoY, wind has is up only 2% YoY, and overall renewable generation is up 19% YoY. RE generation as percentage of total generation has grown 160bps in H1FY23 over FY22 mainly due to >21.6GW of RE capacity installation between Apr’21-Aug’23. Over the medium-to-long term, we expect thermal generation to continue thriving until large-scale storage at viable rates is set up, especially to replace coal for catering to the base demand.

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