NTPC, JSW Energy, PowerGrid to benefit from rising power demand: Jefferies

On the supply side, the report highlighted that irregular rainfall and unusual dryness impacted hydropower generation which declined 19 percent YoY while All-India thermal PLF increased to 72 percent from 67 percent YoY in order to compensate for the deficit.

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Power demand in January 2024 grew on expected lines at 5 percent on the back of a high base of 14 percent rise last year, a latest power sector report by Jefferies said. The brokerage expects an increase in temperature in the summer months will further boost the demand.

The broker has rated NTPC, JSW Energy and Power Grid as its top picks.

Rising demand

In terms of geography, North India saw the highest rise in demand in January at 8 percent on-year, while the West accounted for the overall highest power demand at 32 percent, followed by North at 31 percent and South at 25 percent, the report said.

On the supply side, the report highlighted that irregular rainfall and unusual dryness impacted hydropower generation which declined 19 percent YoY, while All-India thermal PLF increased to 72 percent from  67 percent YoY in order to compensate for the deficit.

Also read: Govt eyes concentrated solar power systems in renewable energy parks

Rise in renewable energy

So far in FY2024, more than 25 GW renewable auctions were conducted which, according to the report, is much higher than FY2023 which saw around 6 to 9 GW rise. According to Jefferies, this is largely in line with their estimate of 18-25 GW and the required annual run-rate for India to reach Jefferies’ estimate of 308 GW renewable energy capacity expectations by 2030. The government has a 450 GW target for the same duration.

Market Coupling implementation

Recently CERC (Central Electricity Regulatory Commission), the power regulator, directed Grid India to develop a software within two months for the market coupling pilot for a duration of two months across all three exchanges. According to Jefferies, if market coupling is implemented, it could be “negative for IEX due to decline in market share”.

Also read: MC Explains: What is market coupling and why is it in the news?

CERC draft energy generation tariff norms

Additionally, in January 2024, in a draft paper on tariffs by CERC, the Return on equity (ROE) on regulated projects has been retained at 15.5 percent for thermal and transmission projects and as well as 16.5 percent for for hydro projects. This according to Jefferies, augurs well for NTPC  and Power Grid on a regulated business. The brokerage has a buy call on both stocks.

Also read: Business as usual say brokerages on recently-released draft CERC regulations

“On a competitive bidding, given access to lowest rates, NTPC and Power Grid are in a better position to generate profitable growth,” the report said. Additionally,  JSW Energy should see some benefits from commissioning of 700 MW merchant power plant & renewables rising to 81 percent of capacity from 52 percent over the next 5-7 years.

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