Strong domestic power demand growth, renewable energy transition theme, and government policy initiatives have been driving the rally in the power generation stocks this year. Also, power equipment makers, such as Suzlon, have made sharp gains driven by strong order inflows and positive policy measures such as the introduction of closed bidding for wind capacity additions.
Recent tailwinds apart, there seems to be a longer runway for the power sector, thanks to the Centre’s ambitious target of 500 GW of installed non-fossil fuel generation capacity by 2030. Translating to an annual capacity addition requirement of around 40 GW, this opens significant opportunities for the major power generation companies (gencos). How well are the listed gencos placed to ride on this renewable energy wave?
The target includes large hydro and nuclear and hence is made more flexible. As the installed non-fossil fuel capacity stands at around 178 GW as on March 31, 2023, annual capacity addition of a little over 40 GW for the next 7-8 years is required which implies more than 250 per cent of the current levels of 15 GW (FY2023).
In order to achieve the target, the Power Ministry has laid out a certain policy initiative including inviting bids for around 50 GW of renewable capacity annually for the next five years, favourable policy changes in wind energy and implementation of production-linked incentive scheme (PLI) for solar modules manufacturing.
While non-fossil fuel sources based gencos, such as NHPC, SJVN, and Adani Green, have planned capacity expansion, major power gencos involved in convention energy (thermal), such as NTPC, Tata Power, and JSW Energy, are planning to change their fuel mix.
State-run NTPC has announced the target of installing 60 GW of renewable energy-based generation capacity by 2032. This implies that from the current share of around 10 per cent, renewable sources will comprise about 46 per cent of the company’s total installed capacity by 2032.
Some gencos, such as Tata Power and JSW Energy, are diversifying into renewable energy. Tata Power plans to increase its green exposure from 37 per cent to 80 per cent by 2030. They are involved in solar EPC business and will set up a 4-GW solar cell and module manufacturing plant by Q2FY24. JSW Energy aims for an 80 per cent non-fossil portfolio by 2030 and has ventured into energy storage systems, including battery energy storage and pumped hydro storage. These battery storage systems enable round-the-clock power supply from intermittent renewable sources, unlike thermal power.
Per the CEA report, wind and solar energy will comprise 88 per cent of the incremental non-fossil fuel capacity addition by 2030. NHPC and SJVN are also joining in by building significant solar and wind-based capacities. CEA estimates a total incremental capacity addition of around 30 GW from hydro, which will help stabilise the grid.
NHPC’s under-construction capacity of approximately 10 GW includes 3.2 GW of solar, while SJVN’s under-construction capacity of 4.4 GW comprises 1.5 GW of solar, 1.3 GW of thermal, and the rest is hydro. Adani Green plans to grow its current portfolio to around 45 GW by 2030 — more than five times its current capacity.