With the surge in demand for electricity, India may need to look at an energy mix to sustain its economic growth rather than just relying on renewables.
As the pace of hydro and nuclear expansion is slow, additional coal-based thermal capacity is crucial to meet India’s energy requirements. “Thermal mix in overall generation has risen to 75% in year-to-date FY24 versus 73% in FY23,” said analysts from Nuvama Institutional Equities.
For November, the thermal generation mix was 81% against 77% last year, while for renewable energy it was 10% vs 11% last year. For hydro, it was 5%, pointed out the broking firm.
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Investments in power generation, transmission, and distribution will rise substantially in the coming years, with thermal and renewable energy sectors expected to grow significantly.
According to Jefferies India, power capital expenditure’s compound annual growth rate will likely jump nine-fold from 2.2% in FY10-20 to 20% in FY23-26. “We believe thermal capacity addition should rise to 17 gigawatts (GW) annually from 2-5 GW run-rate since FY18, while renewable energy rises materially also,” said Jefferies’ analysts in a report on 5 December.
The power ministry recently said India will add 80 GW thermal power capacity by 2031-32. In November, the government urged the industry to plan for the addition of thermal capacity. Power minister R.K. Singh said, “Given the power needs, the industry will keep getting orders for thermal capacity addition for the next 5–7 years.”
India’s biggest power generator NTPC plans to add 11.2GW of thermal power capacity beyond FY26. This is in addition to the 10GW under construction which is set for commissioning by FY26. It also aims to boost its renewable energy capacity to 20GW by FY26 and 60GW by FY32 against the current 3GW.
Against this backdrop, the plant load factor (PLF) at most power companies has been improving. Data compiled by Nuvama shows, PLF at Tata Power’s thermal plant CGPL during April-November 2023 was at 64% compared to 41% a year ago. During the same period, PLF at JSW Energy’s Vijaynagar plant rose to 65% from 58%.
Nuvama believes power demand during evening hours is now met by ramping up thermal PLF, which is likely to continue until renewable energy-plus storage comes up in four-five years. Currently, without the contribution of solar energy, power deficit may rise in the evening hours.
Investments in thermal capacity are expected to yield substantial returns for companies in this sector. Firms like Bharat Heavy Electricals, NTPC, Thermax, Power Grid Corporation of India Ltd, and JSW Energy are poised to benefit from this trend. Their shares have surged 38-125% so far in 2023, reflecting the near-term prospects.