#8: Power Sector in India at a Glance
India is the world’s third-largest producer and second-largest consumer of electricity. Yet, it has one of the lowest penetration of electricity, which gives the power sector in India a high growth potential.
The government recognizes this and has been on a path to achieve 100% household electrification, and cheaper and more reliable electricity to the Indian industrial sector. According to the Union Budget 2021-22, 139 GW of installed capacity. and 1.41 lakh circuit km of transmission lines were added and 2.8 crore households were connected in the past 6 years.
Yet, more private capital is needed for fast growth. Therefore, 100% FDI is allowed under the automatic route in the power segment and renewable energy.
Existing Installed Capacity
As of 31-Jul-21, the total installed capacity was 386,888 MW sector-wise bifurcation as below:
Fuel-based bifurcation
India has large reserves of coal. Therefore, by far the coal-based energy had had the largest share.
Renewable Energy Sources include Solar Energy, Wind Energy, Small Hydro projects, Biomass Gasifier, Biomass Power, Urban & Industrial Waste Power.
Solar and wind energy are the largest sources of renewable energy in India. There is an increased focus on increasing the share of RES (Renewable Energy Sources) in the generation mix and the government has rolled out various policies to achieve the same.
There is a huge scope for solar and wind energy in India, given the abundant sunshine throughout a major part of the year, and large swathes of uncultivable land available for wind harnessing.
Companies like ReNew Power have been investing heavily in the renewable power segment in India with a total commissioned capacity of 5.6 GW and a further committed capacity of 4.26 GW.
Companies like Tata Power, Adani Green, JSW Energy, and Reliance Industries too have green power assets and ambitious expansion plans. Most major power generation players in the private sector have cancelled out on any expansion plans for coal-based power plants, rather are investing heavily in green energy.
While the demand for energy is expected to boost in the near future, there are other factors that must be analyzed before investing in green energy companies:
Green energy is a capital-intensive business. Availability of capital at low costs is essential for success given the wafer-thin margins in sectors like solar energy.
Solar auctions are resulting in lower tariffs by the day, reaching below INR 2 per unit in the latest auctions. Economies of scale will have a greater role to play in future.
Rising demand will be seen for energy storage solutions as well as cost reduction innovations in the sector.
Long-term investors must allocate some part to the power sector in their portfolio. Choose companies with better capital structure, excellent management, and better credit ratings.
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Surbhi Singhal is a Chartered Accountant and a Company Secretary; and the founder of Advance Thinktank. The company specializes in preparing custom research reports regarding investment opportunities in India, tailored to the client's needs.