Merchant power sales to remain high, FY23 likely year of acquisitions: JSW Energy CEO

What was the average price at which you sold the merchant power? 

I won't like to talk about it. All I will say is that the average merchant price in the country for the quarter was Rs 7.7 rupees; ours was a little better than that.

We have 800 MW of our capacity open, which we sell in blocks of 15 minutes when the price is more than our cost of coal. So whenever the prices are good, we are able to sell more volume. Now prices are at an elevated level so we are able to sell more volume. Our volume was close to 8 percent of the total volume traded on the exchange in the last quarter. It's quite a good contribution from our side and that’s what is reflected in our EBITDA (earnings before interest, tax, depreciation and amortisation) improvement also. We sold close to 900 million units as compared to 150 million units a year ago.

Will you continue this level of volume on the exchanges? What is your outlook on the demand and price in the short-term market? 

It is very difficult to predict, but I can say that prices will remain elevated in emerging markets because the cost of coal is pretty high and demand is robust. There is a supply-demand mismatch. Next two- three years, you will be seeing elevated power prices and a robust power demand. We will continue to do as much sales as we can in the merchant market; we will be doing better than what we have have been doing the last couple of years.

Coal demand has gone up globally. The Indian government is also pushing to increase coal imports to meet the rising power demand. What should be our strategy for sourcing coal at a good price? 

The demand and supply situation is changing; power plants were growing at 5 percent but there was an overcapacity which was getting absorbed. But now the only capacity that is being added is renewable energy, which is around 15-16 gigawatts (GW), that is actually equivalent to 3-4 GW of the normalized capacity. Power demand is growing by 10 GW. So there is an arbitrage for the capacity that is not tied in supply agreements. Typically, power plant load factor (PLF) was close to 50-52 percent, which is now ramping up in case of the thermal PLF for the country as a whole. Last quarter, the thermal PLF was 69.8 percent. All the stranded capacities are getting utilized; the government is also supporting this. The coal demand will continue to increase as more thermal capacity is getting utilized. Coal India’s dispatches and production are up. But because the thermal base, power demand is increasing, there is a need for importing more coal; it is a short-term measure. Two things are happening– Coal India and its subsidiaries are increasing supply and secondly, commercial mining is increasing. To add to that, we will have to increase imports as a short-term measure. There will be a spike in the thermal coal imports but as energy transition is taking place, more capacities from the renewable resources will add up. So this is going to be a short-term issue for 3-5 years, during which we can see an elevated power demand and increase in coal imports. But in the next three to five years, things will get normalized.

Will importing coal become challenging given that demand for coal across the world has gone up? 

I don't think so. The elevated coal prices are primarily due to elevated gas prices. The thermal power plants in Europe and the US run on gas. Due to the Ukraine-Russia war and the subsequent supply disruption and sanctions, gas prices have gone up tremendously and many countries have started procuring more coal to fire their thermal power stations. So this is a short-term supply side issue. But as soon as the geopolitical issue reduces, we will see natural gas prices moderating and then immediately, thermal coal prices will also start moderating.

Typically, due to monsoon-related disruptions in mining and supply of coal, the post-monsoon months are challenging. This year we faced a power crisis in March-April already. With all the measures that are being taken, will another crisis be averted in September-October-November? 

The domestic coal supplies are pretty robust. The country as a whole will have a much better situation in terms of the supply side. But the problem is that the international coal prices are quite elevated and so that is a challenge. Power is available and in case it is not, it is because power purchase agreements (PPAs) were not signed. There are a lot of power plants where discom (power distribution companies) never tied up PPAs as cheaper power was available in the market. Buyers and sellers will have to work together and to sign the PPAs so that capacities are operational immediately.

There are reports that you are talking to private equity and foreign banks for acquisition of Mytrah Energy. What is the update on that and how far are we from closing that deal? 

I won't be commenting on any individual asset. What I can tell you is that yes, we are looking for inorganic growth opportunities and we have been evaluating them and there are some discussions at an advanced stage.

You are referring to the likely acquisition of Mytrah and Vector Green… 

I don't want to comment on a particular asset. We are certainly looking at acquisitions which fit in our growth strategy. We continue to evaluate all the possibilities; at a right valuation for a right asset, we are a buyer.

Will FY23 be the year of acquisitions for you? 

I think so.

Are you hopeful of closing both acquisition deals this fiscal?

I don't want to comment on any of the assets but I am saying that there will be some growth opportunities. We are quite optimistic about our expansion plan of expanding capacity to 10 GW by FY25. I am more than confident we will be achieving this capacity much earlier. We are at 4.8 GW right now and another 5 GW is under construction, which will take our capacity to 7.2 GW by FY25. We have the balance around 2.8 GW of capacity to grow organically or organically by FY25.

How will you finance this?

We will be growing our capacity to 10 GW FY25 and 20 GW by FY30. For that we don't need any equity capital from anybody because we generate enough cash flow; Rs 2,300 crore-Rs 2,500 crore is the cash available to grow our balance sheet. This is sufficient for us to grow without any equity dilution. If we see any opportunity to grow further and beyond what we have laid down plans for then we may look at options. 

JSW Energy is in the process of reorganising its business into two parts—conventional and renewable business. What is the status of this plan and any updates on the value unlocking in the green energy business– JSW Neo Energy?

We are expecting that restructuring should get completed and as and when any opportunity comes our way, we will be evaluating value unlocking. We should be able to get NCLT (National Company Law Tribunal) approval for the reorganisation in another three months.