Moneycontrol Pro Panorama | India moves to pre-empt blackouts amid rising demand

Electricity generation in the relatively cooler month of January 2023 is up 10 percent, implying healthy off-take and demand. Prices in the spot electricity market rose in February. (Representative image)

Dear Reader, 

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

The central government has ordered all power plants using imported coal to operate and generate electricity at full capacity. This is the second time in as many years that the central government has invoked the emergency clause of the Electricity Act, 2003.

The development signifies two things. One, electricity demand-supply is precariously balanced. Electricity generation in the relatively cooler month of January 2023 is up 10 percent, implying healthy off-take and demand. Prices in the spot electricity market rose in February.

Second, the situation will benefit thermal power producers. NTPC, with large thermal power generation capacity, can see better off-take and utilisation levels. Tata Power Co, JSW Energy, Adani Power, companies with imported coal-based power plants, can utilise their assets better. Currently a large portion of the imported coal-based power capacities are underutilised.

In 2022 when the government invoked Section 11 of the Electricity Act, it allowed the companies to recoup fuel costs. The benefit of this was seen in Tata Power’s quarterly results -- the company recognised higher revenues from Mundra power plant.

Imported coal can push up electricity generation costs and states can refuse to lift costly power. But rising electricity demand and an energy crunch bind state discoms to their existing power suppliers. As such, companies are allowed to sell unutilised power in the open market. “Section 11 has been reimposed so coal cost will be a pass through as it overrides the PPA conditions,” explains Rohit Natarajan, research analyst at Antique Stock Broking. PPA is power purchase agreement.

Coal prices in international markets softened in recent weeks amid rising supplies and easing energy crunch in Europe. This can aid India and help it tide over the summer demand. Still, the government and other stakeholders should spare a thought for working out a long-term solution.

Domestic coal production is falling short of India’s requirements. If India did not import coal in the earlier part of 2022 for blending, the fuel stock available at domestic coal-based power plants would have depleted completely by September 2022, explains the government. “The average depletion (in coal stock) was about 1.6 lakh tonnes/day during first half of FY 2022-23,” adds the power ministry.

Meanwhile, the steady rise in demand and near stagnant thermal power capacities is reducing the spare capacity in conventional energy generation sources. In fact, despite the ramp-up of electricity generation at imported coal-based power plants, electricity supply can fall short of demand during evening peak hours, show calculations by Antique Stock Broking's Natarajan.

India is rapidly adding solar power generation capacities. However, this form of energy is not available during evening peak hours and nights. While the government is providing a much required push to storage technologies the country is yet to see large scale additions. This puts the onus on conventional energy. The government should think about beefing up conventional energy capacities to meet peak energy demand or as a back-up.

Investing insights from our research teamIDBI Bank divestment: Why has it sparked so much interest?

Discovery series: Can this small-cap metal stock outperform, riding on the tailwinds?

Trent: Can this apparel player continue to outperform?

Samvardhana Motherson’s acquisition of SAS opens up new opportunity

Tracker

Economic Recovery Tracker: Rural sentiment picks up

What else are we reading?

Not as straight as it looks: Why price targets fail

Why are retail investors running away from the cash market?

HZL-Vedanta: Government’s opposition to the zinc deal has a surprising escape clause

Marketing Musings: The tricky business of branding hotels

The great Indian equity sale: Are you game for it?

Why we should worry about Artificial Intelligence and its ethics

BHP takes $1bn hit from inflation but optimistic on China and India growth (republished from the FT)

New Age of Warfare: Acing technologies, tactics that helped Ukraineneutralise Russia’s firepower is every military’s goal

Social Media: Splitting it up may be its only hope

Can we tame a dragon, aka ChatGPT?

Adult kids moving in back with their parents isn't a problem

Technical Picks: Happiest Minds, FSL, Reliance Industries, TVS Motor and Aluminium (These are published every trading day before markets open and can be read on the app) 

R Sree Ram
Moneycontrol Pro