Shares of power generators gained further on hopes that their revenue will be stoked by higher returns from merchant and short-term sales as discoms will have to shell out more to meet the growing demand in summers.
Most power utilities like Adani Power, Tata Power and JSW Energy sell a smaller proportion of their total output on a merchant basis in the short-term market, which fetches better prices when the demand is high.
As temperature soared across the country since mid-March, there has been a sudden increase in power demand, widening the demand-supply gap. To curb profiteering by generation companies, the central regulator, Central Electricity Regulatory Commission, has put a cap of Rs 12 a unit as against the previous limit of Rs 20 a unit for electricity traded on the exchanges.
Even with the cap, the power tariff of Rs 12 a unit will be significantly higher than the power tariff that generation companies are contracted to sell through long-term power purchase agreements.
Sector experts expect the power crisis to aggravate going ahead as coal inventories slump.
Generations companies’ may report higher revenue and better cash flow in the fourth quarter.
The sentiment was also boosted by expectations that the power generation companies may report strong financial results in the fourth quarter of 2021-22. Also, industry experts said that these companies may have witnessed better cash flows on payment of dues from power discoms.
Adani Power has recently received dues with interest totalling Rs 3,000 crore from the state-run power distribution company in Rajasthan. While the shares had already gained since the Supreme Court ordered the discom to pay in February, the receipt of payment added to the upside.
Analysts say the surge in stock price was also after many power sector reforms were introduced by the government for bringing efficiency and discipline in the sector including proposed amendment to the Electricity Act.
Along with this, new market mechanisms are under discussion to promote competition thereby providing affordable power to the consumers. The Indian power sector is evolving at a fast pace and the power demand is increasing rapidly.
India's growing urban population, improvement in economic activities in the recent months after significant population received vaccines, and the need for clean and reliable power supply provide a huge scope for continued growth in power demand, according to analysts.
"The Government of India’s focus on reducing the carbon footprint has accelerated growth of renewable capacity addition in the country and the renewable capacity targets have been revised to 450 GW and more by 2030.... The rise in power consumption, commissioning of renewable projects, and lower interest costs too are adding to the optimism for the power sector," said Narendra Solanki, Head of Research , Investment Services, Anand Rathi Financial Services.
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