Budget 2021

Plugging into gains from electrification schemes

Nithya Palani | Updated on February 01, 2018

The change

Budget allocation has been increasing over the years for the power sector. This Budget has increased allocation towards the Saubhagya scheme (household electrification) launched in September 2017 and has also set aside more funds towards the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) (electrification of villages). The allocation was ₹2,750 crore towards Saubhagya Scheme and ₹3,800 crore towards DDUGJY.

DDUGJY is targeted to be completed by May 2018 and Saubhagya scheme by March 2019.

The background

Coal shortage, weak demand and reducing PLFs have been the few headwinds faced by power generators in the recent past. Power generating companies like NTPC, Adani Power and Tata Power have been increasing the installed capacity whereas the demand for power remains muted, putting pressure on revenue growth. NTPC, the largest power generation company in India, managed to maintain the plant load factor (PLF) for coal-based plants at 76.6 per cent whereas overall the PLF of coal-based plants has reduced to 59.7 per cent as of November 2017, from 70 per cent in fiscal 2013.

The profit growth of power generators has also been muted due to higher input cost and lower offtake. Due to change in regulations overseas, the price of imported coal has increased, leading to increase in operating cost for some power players like Tata Power and Adani Power. NTPC had signed long-term fuel supply agreements with coal producers, which ensures continuous fuel supply to the company, supporting profit growth. Power Grid, the largest transmission company, put up a good show with strong revenue growth and profit growth in the first half of fiscal 2018. This company is also in the process of strengthening transmission lines for distributing additional renewable power.

The verdict

Power generating companies like NTPC, NHPC and power transmission company Power Grid Corporation will benefit from the increase in demand for power, as these schemes expand the reach of electrification in the country. The new schemes are also expected to increase the PLF of power generating companies like NTPC, NHPC, Tata Power and Adani Power, which are unable to utilise their installed capacities due to lower demand. Since the completion target is close, speedier execution could see Power Grid’s order book increase.

Coal shortage and increase in imported coal prices remain a big concern for power generators like Adani Power and Tata Power. However, the Budget has left the taxes on coal unchanged. Imported coal used for power generation between April and December 2017 is 43.6 million tonnes, which is around 27 per cent of total coal imports.

Published on February 01, 2018

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