• Analyst corner: Prefer NTPC, hold on Power Grid with revised TP at Rs 210

    •    Source: Jefferies, The Financial Express /New Delhi, 19th September 2018 Published on : 19th September 2018

      India’s power regulator (CERC) needs to do a balancing act while deciding on FY20E-24E equity return norms for generation and transmission projects. Reviving the dwindling sector investment and lower prices for end-consumer are the conflicting themes it has to deal with. Our recent interactions with companies and industry experts indicate no material regulated ROE change and focus on options to contain coal costs. Prefer NTPC to Power Grid (Hold). 

      Current demand trends ramping up to 8% CAGR will not need incremental announcements for capacity addition until at least FY22E.

      AT&C losses have declined and tariff hikes are also being taken at a gradual pace. Fuel is the single largest cost component at 83% of power cost. For regulated entities, fuel cost is a pass through including taxes and transportation. Our industry interactions suggest that officials are monitoring coal pilferage/leakages and billing charges vs calorific value to contain power costs.

      Every five years CERC evaluates and finalises projects returns for regulated generation and transmission companies. FY20E-24E is the next five-year block. CERC is focused on not hampering sector investments, and interest rates are also seeing a hardening trend. Hence, we believe regulated ROE should see upside surprise of a marginal change vs our/ consensus’ earlier expectations of 15.5% dropping to 14%.

      We believe the next 12 months should see NTPC benefitting from improving PLFs, better regulatory environment, lower coal shortages and mining. We raise our NTPC/Power Grid FY20E estimates by 2-5%, factoring in regulated ROE reducing to 15% vs 14% previously. We maintain ‘Hold’ on Power Grid, as we believe de-rating from slowing growth should cap upside and revise TP toRs 210 (from Rs 205).

  • Banks must take over Rs 10,000 crore haircut to rescue ailing mega power units in Gujarat

    •    Source: FE Online, The Financial Express 19th September 2018 Published on : 19th September 2018

      Banks would have to take a huge haircut of over Rs 10,000 crore, in order to make stressed mega power assets of Adani Power, Essar Power and Tata Power in Gujarat viable, the High Power Committee set up by the state government of Gujarat has recommended. The state government and banks have not taken any final decision on the recommendations to sort out the issues related to these ailing power projects yet, according to a report by The Indian Express. 

      While the debt of Tata Power Project and Adani Power Project needs to be cut by Rs 4,240 crore and Rs 3,821 crore, respectively, the banks would have to take an haircut of Rs 1,154 crore on Essar Power Project, HPC suggested. Banks might have to reduce the outstanding debt by about Rs 2,324 crore to make the debt sustainable. Moreover, HPC has also recommended to reduce the interest rates on all these three projects. 

      These mega power projects with a total capacity of 10,000 megawatts can only be run on imported coal and have a debt of over Rs 22,000 crore, a senior Gujarat government official told the paper.

      Earlier in January this year, the state-run bank State Bank of India, one of the lenders to these projects, had requested the state government to form an HPC to find a solution for resolving financial issues of these projects. Subsequently, a three-member HPC was set up in July and Supreme Court justice RK Agrawal was appointed as the chairman of the committee.

      In their submission to the HPC, banks had said net worth of these projects has already wiped out. Besides, they also added that all three projects are currently surviving on additional fund infusion by promoter groups and there is a likelihood of further erosion in the credit worthiness of the producers. These projects are also likely to become NPA, which will lead to further loss that would be born by lenders.

      “The fuel cost under recovery, significant promoter level financial support, the fact that the equity in these projects has effectively been written off, and the overall operational constraints and financial challenges faced by these projects, have collectively resulted in the situation where these projects are not in a position to earn any return on equity (ROE),” HPC stated in its report.

      All these three projects were envisaged to import coal from Indonesia, which is the largest supplier of imported coal to India, for their operations. However, in April 2017, the Supreme Court passed a ruling in which it said that impact of high imported coal prices can not be passed on to consumers.

  • Minister says TN will remain power surplus

    •    Source: Our Bureau, The Hindu Business Line / Chennai, 19th September 2018 Published on : 19th September 2018

      Tamil Nadu Electricity Minister P Thangamani on Tuesday asserted that the State would not face any outages and remain a power-surplus State. 

      The Minister, who was in New Delhi with State power department officials to meet Union Coal Minister Piyush Goel and Union Power Minister RK Singh, addressed the media in New Delhi on the power situation in the State.

      ‘No outage issue’

      Dismissing the power outage issue in Tamil Nadu as a false propaganda by the Opposition parties, Thangamani said his visit to the capital was to request the Centre to allocate more coal to thermal stations in Tamil Nadu in order to maintain sufficient coal stock.

      He explained that the coal stock for thermal stations in Tamil Nadu dropped to three days from the normal 15 days due to disruptions in transportation of coal from Odisha last week because of rains. Not just Tamil Nadu, thermal stations in other States also faced dwindling inventory due to the rains, he said.

      After Tamil Nadu Chief Minister’s letter to the Prime Minister requesting for more allocation of coal a few days ago, Tangedco has been receiving 13 rakes of coal every day, up from 8 rakes last week.

      “After our meeting with Coal Minister Piyush Goel today, the Centre has promised to send 16 rakes of coal every day. They also agreed to consider our request for 20 rakes of coal a day favourably. We asked for 20 rakes in order to have a coal inventory for longer days,” he added.

      CIL supply

      A statement from Coal India Ltd (CIL) said: “In view of the increased demand of coal by Tangedco, CIL has drawn up a plan to supply 16 rakes per day (about. 61,000 tonnes/day), comprising of 13 rakes by Mahanadi Coalfields, 2 rakes from Eastern Coalfields and one rake from Central Coalfields.

      CIL has advised its subsidiary coal companies to ensure supplies to Tangedco for enabling them to build comfortable coal stock. CIL has also requested Indian Railways to supply more rakes to ensure delivery of coal to Tangedco as per their requirement.

      Drop in wind

      Explaining the power outages, Thangamani said a significant drop in the generation of wind power as against the forecast created a temporary setback.

      Tangedco gets wind power between last week of May and the first week of October and during this period thermal stations take up maintenance activity for a couple of months one by one.

      As against first week of October, wind power generation fell from about 3,000 MW to double digit levels during September first week. It led to some power cuts for about 30 minutes on a turn basis across the state on 9th and 10th.

      However, Tangedco restored the power situation immediately by increasing the generation at its thermal stations and also procuring the share of power from Central stations.

      Fall in demand

      Meanwhile, power demand in the State dropped in the past two days and accordingly Tangedco reduced the generation level at its Tuticorin and Mettur stations. “This is not due to non-availability of coal, but because of a drop in demand due to monsoon rains across the state,” he added.

      The State Power Minister stated that Tamil Nadu would not face power shortfall as the installed capacity is about 18,000 MW, including Centre’s share, in the conventional segment, while the demand is about 15,000 MW. Also, the total installed capacity in the renewable sector is about 11,000 MW, including 8,150 MW of wind power.

  • Reliance Power to acquire stressed assets for inorganic growth

    •    Source: Ksenia Kondratieva, The Hindu Business Line / Mumbai, 19th September 2018 Published on : 19th September 2018

      Anil Ambani-controlled Reliance Power — which operates a 5,945 MW thermal and renewable power portfolio — may look at acquisitions as the stress in generation across coal, gas and hydro segments presents opportunities.

      Addressing the company’s general meeting on Tuesday here, Anil Ambani said inorganic asset acquisitions of stressed thermal assets — through resolution process by lenders or under NCLT — is one of the growth opportunities for Reliance Power.

      Power portfolio

      Operations and maintenance services for stressed power projects undergoing implementation of resolution plan as well as development-cum-operation of coal mines are the other growth opportunities, he added.

      Reliance Power currently operates 3,960 MW coal-based Sasan Ultra Mega Power Project in Madhya Pradesh and 1,200 MW coal-based Rosa Power Plant in Uttar Pradesh as well as coal and wind projects in Maharashtra and two solar plants in Rajasthan.

      All of its capacity is tied up in power purchase agreements (PPAs) and operated at around 85 per cent capacity which is above the national average of 63 per cent in FY18.

      ADB aid

      Reliance Power has received in-principle financial sanction from the Asian Development Bank for $583 million during FY18 for its 750 MW power project in Bangladesh and expects to close financing by end of FY19.

      The first phase of the project is expected to start commercial operation by March 2020 and will boost the company’s top-line and bottom-line , Ambani said.

      Vikram Solar projects for Century Ply

      Ahmedabad, Our Bureau: Vikram Solar Ltd, a module maker and rooftop solar and EPC solutions provider, announced on Tuesday the commissioning of a 1,461 kW rooftop solar PV system for Century Plyboards at two locations — Kutch and Chennai.

      The 1,056 kW facility at Century’s Chennai unit is spread over 11,000 sq m across seven factory sheds and three evacuation points. The 405 kW rooftop PV system for Century’s Chirai Moti unit near the Kandla port is spread over 450 sq m. The project will power the entire factory with electricity evacuated at two points.

  • Power spot prices plunge on low demand

    •    Source: Utpal Bhaskar , Live Mint / New Delhi, 19th September 2018 Published on : 19th September 2018

      Electricity spot prices in India fell from a eight-year high because of lower demand on account of change in weather and more plants coming online. Prices dropped to 9.50 per unit for Wednesday from 14.08 per unit for Tuesday on the India Energy Exchange (IEX).

      The Tuesday price was the highest since April 2010 when spot prices rose to 13.90 per unit. The all-time high for electricity in the spot market was 17 per unit in April 2009, according to IEX. The average and maximum spot prices have been increasing since September.

      According to IEX, the average price for Wednesday is 5.28 per unit as compared to 6.53 per unit on Tuesday; with 237 million units (MUs) of electricity being offered to be supplied on the exchange as compared with a demand for 236 MUs.

      Given the weather system developing over Southern India, states such as Telangana which was a buyer didn’t evince any interest in buying electricity, according to Rajesh Kumar Mediratta, director, business development at IEX.

      According to the India Meteorological Department (IMD), under the influence of a low pressure system, fairly widespread to widespread rainfall activity with thunderstorms and lightning are very likely over West Bengal and Odisha during 19 to 21 September. The weather system that developed over Bay of Bengal will move over Coastal Andhra Pradesh during 18 -21 September; Chhattisgarh and Telangana on 20-21 September; over Madhya Pradesh on 21-22 September and over parts of Northwest India on 22-23 September.

      Of about 1,200 billion units (BU) of electricity generated in India, the short-term market comprises about 130-150BU. This trade volume has grown by about 10% annually and is currently valued at about 22,124 crore.

      India’s power demand is expected to grow with the government’s focus of providing “24x7 clean and affordable power for all” by March 2019. Also, the government is working on an ambitious plan to provide induction stoves to poor households. Also, the 16,320 crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya), launched last year to provide electricity connections to more than 40 million families by December 2018, will require an additional 28,000MW of power, considering an average load of 1 kilowatt (kW) per household for eight hours in a day.

  • Soon, energy projects may undergo green checks

    •    Source: Nidhi Sharma, ETEnergyWorld / New Delhi, 19th September 2018 Published on : 19th September 2018

      The government plans to make projects such as power plants, mines and oil and gas exploration ventures and expansion initiatives subject to checks by independent auditors to ensure they are complying with environmental conditions and prevent the kind of public protests that erupted in Tamil Nadu over the Vedanta group’s copper unit earlier this year.

      The government-approved auditors will conduct randomised, third-party compliance monitoring of environment clearance conditions, according to a draft notification of environment ministry. This will be effected by the environment ministry introducing a new rule in Environment Impact Assessment Notification of 2006, which will allow it to empanel agencies for carrying out such studies.

      “Notwithstanding the above provisions, the ministry will empanel government institutions of national repute for carrying out compliance monitoring of environment clearance conditions of projects and activities,” according to the proposed rule, under paragraph 10 on Post-Environmental Clearance Monitoring.

      “The compliance monitoring will be done inter-alia against the baseline information available in the Environmental Impact Assessment report, Environmental Management Plan appraised by EAC (Environmental Audit Committee), terms and conditions of the environmental clearance as well as other provisions as may be specified by the ministry from time to time.”

      Any project categorised as A, B1 or B2—graded thus as per industry and size of project — requires environmental clearance. Based on recommendations of expert committees at central, state and district levels, prior clearance is given along with stipulations on environmental mitigation measures. Every firm or project proponent is required to file six monthly compliance reports.

      There are currently no safeguards to check whether these environmental clearance conditions are being adhered to on ground. “These environmental compliance measures are vital as they mitigate or minimise adverse environmental impact of the project and activities,” a senior environment ministry official told ET.

      “Be it a small mining project or a nuclear power plant, mitigation measures need to be followed.” The new rule also comes after sharp criticism by the Comptroller and Auditor General (CAG) last year of India's environment clearance processes. CAG had audited projects cleared between January 2011and December 2015 and pointed out that despite clear environmental violations not a single project had been penalised.

      It had recommended that the environment ministry should consider third-party evaluations once projects, including expansion plans, get off the ground.

  • Financial closure for 750 Mw Bangladesh power project soon: Anil Ambani

    •    Source: ETEnergyWorld / New Delhi, 19th September 2018 Published on : 19th September 2018

      Billionaire Anil Ambani today said a 750 Megawatt gas-based power project being set up by his company Reliance Power in Bangladesh will achieve financial closure in the current financial year, leading to a “significant boost” to top-line and bottom-line of the company on comletion.

      Ambani also said in his speech at the Reliance Group’s Annual General Meeting India’s power sector is going through a challenging phase. “Renewables have seen a rapid expansion driven by Prime Minister Modi’s vision of 175 Gigawatt by 2022. Solar tariffs have come down by around 65 per cent in 4 years. This will drive future growth,” he said.

      He also said RPower’s plants operated at around 85 per cent Plant Load Factor (PLF), well above the national average of 63 per cent, last financial year ended March 2018.

      Ambani asserted that RPower remains a conservatively financed company with a strong balance sheet and has completed capex of Rs 50,000 crore. He said inorganic growth through acquisition of stressed assets at attractive valuations, Operation and Maintenance services for power plants and Mine Development Operator (MDO) services for coal mines will remain the company’s key focus areas going ahead.