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00:00Good afternoon and welcome back to NDTV Profit, you're watching MarketIQ and I'm your host

00:11Meeka Barve.

00:12Well, in today's first half segment of this show, we're going to focus on the power sector,

00:17which has been buzzing off lately, especially today.

00:19And this was on the back of certain counters that have been buzzing in trade today.

00:22And that is power financing companies like Power Finance Corporation, as well as REC

00:28that are, like PFC up 4% in trade today and REC up 3%.

00:32We also have counters like SJV and that are, you know, up 3% in trade today.

00:36And to talk about the power sector as a whole, we have Rupesh Sankhe, who is the Vice President

00:42of Research at Alara Capital.

00:44Good afternoon, Rupesh.

00:49Yes.

00:53You know, Rupesh, I wanted to ask you, I know you don't track the power financing corporations

00:59as it is.

01:00But do you have any view on these counters?

01:01Definitely.

01:02If you look at the next 10 years, we're expecting close to 45 lakh crore kind of investment

01:10in the entire power ecosystem, like from generation, transmission, distribution, and other smart

01:16metering, all these schemes which are there.

01:19So close to 45 lakh crore of investment, unfortunately, in the next 10 to 12 years is huge.

01:26If you look at the current, their portfolio, asset portfolio, I think they can easily achieve

01:3245% kind of load disbursement towards the power sector, which is very strong.

01:40And in terms of NPA issues, we don't see any kind of NPA issues there also, because most

01:46of these are low cost segments, like renewable energy, new energy verticals are there.

01:53So that issue is also not there.

01:55So definitely, in terms of load disbursement, they are very well placed and to grab this

02:01strong opportunity which are there.

02:03So we as a house are positive of PFC and REC from the current levels because of this kind

02:09of opportunity, which are there in the next 10 to 12 years.

02:13And Rupesh, any view on IREDA?

02:16I know it's not, you know,

02:17IREDA also, that is also in the same segment of power financing.

02:22Their asset is slightly lower than the PFC, REC.

02:27But if you look at their recent, the MOEs they have signed, they have become more aggressive

02:32on the renewable energy front.

02:34I think that company also will grow with a higher pace as compared to PFC and REC because

02:40they have low base effect is there.

02:43So IREDA is also, we are positive on that company, we don't have official coverage.

02:49But these three companies, PFC, REC and IREDA will get maximum benefit from the opportunities

02:55which are coming up in the entire power ecosystem.

03:00Thank you.

03:01Thank you, Rupesh, for that.

03:02Well, there you see a positive outlook on the power financing corporations as a whole.

03:06You know, Rupesh, let's also talk about IEX.

03:08Now, the company did post its June monthly update, overall volumes up 19% on a year on

03:13year basis.

03:14What's your view on the company and, you know, growth going forward?

03:18IEX is definitely getting benefit of high peak demand.

03:22So last quarter, we have seen peak demand around 250 gigawatt.

03:26The same year, last year was around 225 gigawatt.

03:29So definitely they got benefit of higher volumes.

03:32So on a quarterly basis, their volume broke by close to 19%.

03:37Second point is that whatever the bilateral market which are there, 40-50 billion units,

03:42is gradually shifting on the X-Edge.

03:45So they're getting benefit from that as well, because in the bilateral market, price discovery

03:50is 25% higher than the X-Edge price.

03:53So most of these discoms are coming on the X-Edge to get benefit of higher volumes.

03:59So in terms of market share loss, the other players, X-Edge players like PXIL or HPX have

04:06not launched the big product like their head market and RTM market, which is almost 80%

04:12of the overall volumes.

04:14So that is getting delayed.

04:16And again, market coupling, which is already in the shadow pilot observation, I think that

04:22might get delayed because new power industry will again have a look on the cost-benefit

04:27analysis.

04:28So the sentiment has changed and we are expecting a 14-15% kind of volume growth going ahead

04:35because of increasing peak demand.

04:38That will have a lot of...

04:40Even the supply side constraints are coming down.

04:43If you look at the core situation and the power plants, which is very, very good at

04:4925-30 days, that will also have, will boost volumes on the X-Edge.

04:54So overall valuation perspective as well as the earning perspective, we are positive on

04:58the stock at this current level.

05:01Yes.

05:02And you mentioned, I'm glad you mentioned peak power demand, which hit an all-time high

05:07in May 2024.

05:09And so did solar for that matter.

05:11But could we see some moderation in the upcoming demand with the onset of monsoons?

05:17And what's the outlook on there and how would this impact companies?

05:21Definitely, if you look at it, third and fourth quarter is always high in terms of peak demand.

05:28But for the full year, we're expecting again, next year, we're expecting close to 260-270

05:33kind of a peak demand, starting from Jan onwards.

05:37So definitely, what market were earlier factoring, 0.8-0.9 times power demand to GDP growth.

05:46But that band has definitely shifted towards 1.2-1.3x power demand to GDP growth.

05:53And largely all the new demand drivers like e-mobility, data center, a lot of green hydrogen,

06:01those will drive the power demand in the next 10-12 years.

06:06So definitely, power demand will remain on the higher side.

06:10Most of these companies are regulated, their model is regulated, fuel cost is passed through.

06:17So there we don't see much impact.

06:19But merchant players like JSW Energy or Adani Power, those are merchant players, will not

06:29see much impact on the earning profile because next year, we're also expecting higher peak

06:34demand.

06:35And today, you might see that peak demand for 2030 might get revised to around 400 gigawatt.

06:41That will also have a long-term positive impact on all the developers, conventional players.

06:48Thank you, Rupesh.

06:50You know, I also want to talk about thermal energy.

06:52Now, yes, India is focusing on renewable energy going forward, but it's not going to back

06:57down from thermal capacity additions itself.

07:00And thermal capacity is going to drive baseload of India's power needs.

07:05So what's your view on the same and the key beneficiaries in the thermal space?

07:09So definitely, if you go with our national electricity plan, which was announced earlier,

07:17for 850 gigawatt of capacity, and factoring for 450 gigawatt of renewable energy at least

07:24a 30% PLF, we need a thermal capacity in place, because India's power demand is growing at

07:318-9%.

07:33And that will require huge renewable energy, which is not going that pace.

07:37So definitely, we need a thermal capacity, like coal-based capacity.

07:42And earlier, we have – earlier, our under-construction capacity is currently 30 gigawatt, but we

07:48need another 60-70 gigawatt of thermal capacity to cater this incremental demand.

07:54And definitely, we will see a lot of greenfield project on the coal thermal side also.

07:59So key beneficiaries here as NTPC, because they are very active on the thermal side,

08:04coal thermal side.

08:06So we can expect some capacity expansion there, capacity enhancement.

08:10Other than that, on the equipment side, opportunities there for the BHEL, they will get benefit

08:19of supply from the BTG component side.

08:23And some of the other EPC players will also get benefit out of this new thermal ordering

08:29activity was started.

08:30So definitely, conventional players – and again, power grid cooperation, because we

08:35need a grid to connect this power generation capacity to the load center.

08:40So power grid also will get benefit out of that.

08:43So we are expecting these companies to continue to get benefit of a demand supply mismatch

08:50there, and a new phase of capacity expansion that likely to come in the next six to seven

08:57years.

08:58Yes.

08:59On the renewable side, offshore wind energy, the viability gap funding coming in from the

09:04government, an outlay of over 7,000 crores, but players like Suzlon Energy and Inox Wind

09:09in the past have mentioned that they don't want to enter the space.

09:12Now, do you think this would be a push for them to consider it?

09:16And what's your view on the future outlook?

09:18See, current capital cost for offshore wind energy is close to 11-12 crore per megawatt.

09:27If you want to have a level playing field with other renewables like solar or onshore

09:34wind, we need a tariff to be around 4.5 rupees per unit.

09:40Then only in the RTC tenders, the offshore wind will play a major role in terms of – once

09:47battery storage comes into picture, it's a round-the-clock power supply.

09:51So viability gap funding must be there.

09:56And we have already identified close to 30 gigawatts of capacity based on offshore wind

10:02science.

10:03So definitely, I think there could be this viability gap funding will remain there for

10:10some time.

10:11At the same time, we are expecting some technological advancement which will bring down the capital

10:18cost also.

10:19But as of now, offshore wind project is not viable and we need some sort of subsidy or

10:27some budgetary outlay for this to take off in a big way.

10:32But definitely, I think Suzlon and Enoxwind, they are only few players will get benefit

10:37out of that.

10:38And we have some conventional players who are keen to go for this offshore wind, will

10:44also get benefit of that.

10:46But it's a long-term story.

10:47Yes, it is a long-term story.

10:49But do Suzlon Energy and Enoxwind have those capacities?

10:52Because offshore wind does require larger gigawatt of turbines.

10:56So do they have the capacity or the capability to meet this in the future?

11:03Will it be very import-dependent?

11:04You are absolutely right.

11:05We don't have that 7, 8 megawatt kind of towers there.

11:13We don't.

11:14It's a different technical capabilities required.

11:17As of now, we don't have that kind of capabilities.

11:20Suzlon, Enoxwind is limited up to 3 megawatt of turbine towers.

11:28But yes, they will have some joint venture partnership with the foreign suppliers, equipment

11:36suppliers.

11:37But they will have on their R&D because in the long-term, potential is very high.

11:44So definitely, they will think on it and will do some sort of a technical upgradation once

11:51they get more clarity in terms of viability of this project.

11:55Yes.

11:56I also want to touch a little bit about hydro power plant generation.

11:59Now the area has been stagnant for a period of time, but it did show 9% growth in May.

12:06What's the outlook on this area and in terms of potential for India?

12:10And who benefits?

12:11Yes.

12:12Current installed capacity is 46,000 megawatt.

12:15And if you go with the HP or hydro power obligation, that every discount has to compulsorily buy

12:23their own, our portfolio peaks by 2030, we need to increment 25,000 megawatt of capacity.

12:31Only players we have is NHPC and HGM, which are very aggressive on the hydro side.

12:38In the last 10-20 years, we have only seen 2% kind of a CHR growth in terms of hydro

12:44capacity addition.

12:45But next 10 years, we are expecting around 12 to 15% kind of a capacity addition on the

12:51hydro side because of this policy push.

12:56Then in terms of RTC around the clock, we need hydro as a technical backup to ramp up

13:04the capacity when we need the power, when there is a grid instability.

13:09So hydro will play a major role in RTC mechanism, also battery storage.

13:15So definitely, I think we have seen recently that NHPC, HGM has signed many MOEs with the

13:23state governments to go ahead.

13:26Even most of their large projects have got clearances also, like a debunk in case of

13:31NHPC.

13:32There are other cross-border activities we have seen in terms of Nepal, all those things.

13:40I think they are also exploring these appropriate hydro opportunities which are there.

13:45So this segment will have already come into picture in the last one and a half years.

13:50But long way to go, 10-15 years, we will see a lot of hydro projects getting commissioned

13:55and only this place will get benefit out of that.

13:59And with the new government now being formed in the upcoming budget, what are your views

14:04on the kind of push or policy support that the power sector does need or could have in

14:10terms of, that would be beneficial for the sector?

14:14What are your views on the same?

14:16I think if you look at Mr. Khattari, he has joined as a Minister of Power.

14:22His background in Haryana discoms, when Haryana discom losses were close to 29% in 2014, it's

14:31now close to 13.5%, which is the lowest in the entire discoms we have currently, 37 discoms

14:40we have.

14:41If you look at the billing efficiency, it's very good there.

14:45And they have done a lot of CAPEX on the T&D space also.

14:48Tariff has not increased, but they are the most profitable discom in India as of now.

14:55I think because of that, we believe that the reforms which has started in the last 10-7-8

15:04years will continue.

15:06The T&D CAPEX reforms, higher allocation for renewable energy side, battery storage or

15:15the hydro space will continue.

15:17And maybe we will focus more on the smart metering, how to bring down T&D losses across

15:23India, that will bring more efficiency on the distribution side.

15:28Also, we will see a lot of continuity in the reforms.

15:32So those reforms will continue and the sector will see very good days ahead in terms of

15:38improving their financial as well as operational efficiencies going ahead.

15:44Thank you so much, Rupesh, for joining us.

15:46And we for sure will have a more detailed chat later in the future.

15:51Yes, well, viewers, that was the outlook on the power sector.

15:53But it's time to slip into a short break.

15:55But do stay tuned.

15:56We have KEC International's management on the other side.

16:01Thank you.

What Will Fuel Growth For Energy Sector? | NDTV Profit

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