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Neutral ground: rich valuations, project delays mark power sector

Neutral ground: rich valuations, project delays mark power sector
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First Published: Wed, May 26 2010. 09 01 PM IST

Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
Updated: Wed, May 26 2010. 09 01 PM IST
Short-term power trading in India (for a trading period of less than a year) increased from 2.9% in 2007 and 3.3% in 2008 to 4.1% in 2009 of the total energy generated. This includes power traded through trading licensees and exchanges, and excludes power traded on a bilateral basis (without traders) and unscheduled interchange (UI) transfer. Including these, short-term power trading in India was 8% of the total energy generated in 2009.
Of the total short-term trading market, the share of UI transaction was 40%, marginally lower than 41% of short-term trading through bilateral transactions carried out through traders. Bilateral trade between distribution companies (discoms) was 9% and volume traded through exchanges was 10%.
In 2009, of the total short-term volumes (excluding UI and bilateral trade through discoms), PTC India Ltd maintained its leadership with a market share of 42.9%, NTPC Vidyut Vyapar Nigam Ltd with 13.3%, Tata Power Trading Co. Ltd with 9.8%, Lanco Electric Utility Ltd with 9.4% and JSW Power Trading Co. Ltd with 7.9%. The share of the three independent power producers in trading is partly explained by captive merchant capacity available with the group for sale in the open market.
The weighted average short-term prices for 2009 are lower than 2008 for all routes: traders, exchanges and the UI market (as a cap was imposed between July and August 2009). Short-term prices were relatively higher in April-August 2009 due to the general election in April-May 2009 and between June and August 2009 due to a delayed monsoon and/or less than normal rainfall in some parts of India. For much of September and October (11 September- 25 October), there was a power price cap on exchanges and in bilateral trade.
Graphic: Yogesh Kumar/Mint
Surplus power with states due to free/power purchase agreement-based power under contract from developers led states to sell power in the open market. Himachal Pradesh, Chhattisgarh, Gujarat and West Bengal were among the top sellers in the open market through traders/exchanges. In April, 250MW of thermal capacity was added against the targeted capacity addition of 1,190MW, an achievement of only 23%. Total all-India capacity was 159,648MW with thermal power capacity of 102,704MW (64%), hydropower capacity of 36,863MW (23%), nuclear capacity of 4,560MW (3%) and renewable capacity of 15,521MW (10%).
In April, all-India generation was up by around 6.1% year-on-year (y-o-y), plant load factor (PLF) up by 111 basis points (bps) y-o-y due to higher availability of gas/spot purchases. One basis point is one-hundredth of a percentage point.
Coal-based power generation increased marginally by 0.2% y-o-y to 46.8 billion units (BUs) at a PLF of 78.2% (down 430 bps y-o-y), and gas-based generation increased 36% y-o-y to 9.4 BUs at a PLF of 77%. Hydropower generation rose by 12.8% to 8.4 BUs and nuclear power generation was up 18% y-o-y.
In April, NTPC Ltd’s net generation increased by 1.9% y-o-y to 18.1 BU (against 16.0 BU a year ago) and the PLF for thermal projects was down by 513 bps to 88%. Due to improved gas availability on account of higher spot purchases, gas-based projects at Kawas and Gandhar reported a PLF of 84% and 86%, respectively. Adani Power Ltd posted generation of 219.7 million units (MUs) and PLF at 92.45%. This translates into generation from only 1 unit of 330MW. In April, Jindal Power Ltd generation grew by 6.1% y-o-y to 743 MUs (against 700 MUs in April 2009). PLF for April 2010 was 103.3%.
In the March quarter, CESC Ltd posted a revenue of Rs750 crore (up 2% y-o-y), earnings before interest, tax, depreciation and amortization of Rs180 crore and net profit of Rs100 crore. Reported net profit was lower than our estimate of Rs130 crore due to a lower contribution from the Budge Budge expansion project. CESC sold 295 MUs of power from the Budge Budge project in West Bengal to its distribution area (on a regulated mechanism) in January and February as the project was commercialized at the end of February. The profits were adjusted against the capital cost and not accounted in the profit and loss. This affected revenue growth and profitability in the March quarter and fiscal 2010.
Uncertainty surrounds NTPC’s 1,000MW under-construction project at Mauda near Nagpur, following a stop-work notice issued by the state government over the rehabilitation of affected families. Last Wednesday, the district collector asked the firm to stop construction as it had not complied with the state’s provision for relief and rehabilitation, throwing a spanner in NTPC’s Rs5,500 crore project. The firm has acquired around 3,000 acres of land, but the relief and rehabilitation process for the affected families has not been smooth, a person familiar with the development said.
Overall, we remain neutral on the sector given rich valuations and project execution delays.
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First Published: Wed, May 26 2010. 09 01 PM IST