More efforts are required to address the issue of stranded capacity in the sector, believes Deepak Amitabh, Chairman and Managing Director, PTC India Limited. In a recent interview with Power Line, Amitabh spoke about key trends and developments in the power trading space, PTC’s recent performance, future plans – including plans for a new power exchange – and the outlook for the sector as it recovers from the pandemic. Excerpts…
What has been the impact of Covid-19 on the power sector? How would you rate the industry’s response to the pandemic?
The sector has been impacted most visibly in terms of the inability of discoms to collect customer dues in a timely manner. The adequacy of cash flows to discoms is also a related aspect. The lockdown period put limitations on many utilities with regard to carrying out field operations including meter reading at customer sites. Thereafter, as states across the country announced relief measures for households and businesses affected due to the pandemic, the cash flow levels became lower than normal levels. These two impacts were compounded by lower demand due to reduced economic activity. When discoms, the only segment of the business that generates cash directly from consumers, are impacted, the other segments are bound to be affected. Overall, the impact of the pandemic on the power sector is relatively less than that on other infrastructure industries. We expect that the demand contraction of around 11 per cent witnessed in the past five months would not be the scenario during the rest of the year as economic activity picks up. In fact, electricity demand in September 2020 has been 3 per cent higher than that in September 2019, reflecting some recovery in demand.
The industry has responded in the manner expected of an ecosystem business. During the lockdown, we witnessed a dip in demand. Industrial and commercial establishments shut down. The importance of domestic demand became apparent to all. The sustainability of the sector became a critical requirement. The liquidity package for distribution utilities under Atmanirbhar Bharat is an outcome of the sustained response of the industry. The inclusion of all participants in the electricity supply chain – generation, transmission, distribution, market makers and consumers – has been the defining character of this response. At the same time, the period has seen efforts towards the integration of markets, such as the introduction of the real-time market (RTM). Other policy initiatives aimed at integration are expected to follow.
What has been PTC’s response to the Covid-19 crisis? What has been its impact on power trading volumes?
Just as the pandemic and the consequent crisis have been unprecedented, so has been our response to it. No amount of planning and preparation for this black swan event would have been enough. Yet, PTC continued its operations on a 24×7 basis, with minimum disruptions. Our dedicated operations team managed work and rest spaces at site equally well, as other teams supported them from remote locations. Our sustained investment and belief in the use of technology helped us prepare for remote working with near-zero response time. PTC’s workforce demonstrated a strong work ethic yet again, and the organisation has evolved further in its journey towards an interconnected, ecosystem-focused business entity. We have backed our teams fully, and there have been no retrenchments/job losses.
At the same time, we are focusing on broadening the footprint of PTC’s core business. Matching a potential surplus generation capacity with a potential consumption basket is at the core of our business. The opportunity presented by such demand-supply matches across geographical and temporal dimensions is intrinsic to the development of the power market. We have taken several steps to sharpen our focus, with the intention of including as many participants as possible, such as an aggregator for the resolution of stressed assets. With the same objective, we have also taken the initiative to create a third power exchange in partnership with two leading business organisations.
The lockdown impacted our trading volumes in April 2020. However, we observed recovery in the month of May when trading volumes reverted to levels closer to the previous year. The demand picked up further in the month of June and PTC’s trading volumes are now higher than in the corresponding period last year.
What have been the performance highlights of PTC India Limited in the past six to eight months?
As mentioned, the six-month period in the current financial year has seen muted trading volumes. The volumes have now stabilised to levels comparable to previous years. During 2019-20, PTC clocked an all-time high trading volume of 66,332 MUs. The income and profitability metrics were higher by around 20 per cent, and our earnings per share increased to Rs 10.81 as compared to Rs 8.86 in 2018-19. Therefore, even when most business organisations chose to be conservative in dividend payouts, we have taken the dividend decision this year, keeping in mind our articulated dividend policy. A dividend of 55 per cent, that is, Rs 5.50 per equity share of Rs 10, was paid out to our shareholders. For the first quarter of 2020-21, while the trading volumes were 2 per cent lower than in in the same period in the previous year, income and profitability metrics were at comparable levels.
How are the company’s plans for a new power exchange shaping up?
PTC’s initiative of setting up a new power exchange along with two other strong institutional players, BSE Investments and ICICI Bank, is driven by the intent to deepen and broaden the market. Providing a credible alternative in the market to exchange-traded power requires the development of multiple product offerings and world-class services for market participants. The first step is registration under the Power Market Regulations, 2010, for which the CERC had asked us to comply with the shareholding pattern proposed by us. We have complied with the order well in time. We are awaiting the learned commission’s final order in this regard. Meanwhile, we have initiated activities pertaining to the implementation of a future-ready technology solution. We look forward to commencing implementation and subsequently operations as soon as we receive permission for registration as a power exchange from the CERC.
What are PTC’s plans for expanding cross-border trade going forward?
Cross-border trading has been of strategic importance to PTC. Over the past 18 years, PTC has expanded cross-border power trading with Nepal, Bhutan and Bangladesh. Going forward, we are continuously looking for opportunities to strengthen cross-border power trade and we will continue our efforts to develop the power market with neighbouring countries.
PTC began cross-border power trade in 2002 with Bhutan through government-to-government agreements. PTC is the designated nodal agency appointed by the Indian government for the import of surplus power from the Chhukha HEP (336 MW) and the Kurichhu HEP (60 MW) since October 2002, the Tala HEP (1,020 MW) since August 2006 and the Mangdechhu HEP (720 MW) since June 2019. In 2014, PTC entered into a PPA with Tangsibji Hydro Energy Limited for the procurement of power from the 118 MW Nikachhu hydropower project in Bhutan based on competitive bidding.
PTC has been consistently supplying 22-30 MW (currently 65 MW) of power to the Nepal Electricity Authority (NEA) on commercial terms during the dry season since 2008, through the 132 kV Tanakpur-Mahendranagar transmission line. In 2011, PTC had signed a long-term power sale agreement (PSA) with the NEA for the supply of 150 MW of power to Nepal through the 400 kV Dhalkebar-Muzaffarpur line. The long-term PSA was instrumental in the financial closure of the above transmission interconnection.
Further, PTC’s relationship with Bangladesh started with the supply of 250 MW of power from 2013 to 2018. This was the first power supply on a competitive bidding basis to Bangladesh through an HVDC interconnection from Baharampur (West Bengal) to Bheramara (Bangladesh). Under a separate contract, PTC also supplied 40 MW of power to Bangladesh from 2016 to 2018. PTC has signed a long-term PPA on a competitive bidding basis for the supply of 200 MW of power to Bangladesh.
What is your perspective on the CERC’s draft power market regulations?
As an important component of the regulatory framework governing power markets, the CERC Draft Power Market Regulations, 2020, incorporates provisions for the over-the-counter (OTC) market, OTC platforms, market for exchange-traded power and power exchanges. We welcome this step as important changes have taken place in the 10 year timeline since the notification of the Power Market Regulations, 2010. This is to be achieved by promoting competition, efficiency, and economy in power markets and creating a level playing field between different types of entities. Overall, the regulator’s intent seems to be towards integration of the markets.
What is the trading potential in the newly launched RTM and green term-ahead market?
The RTM was launched in June 2020 to enable buyers and sellers to meet their energy requirements closer to the time of actual despatch of power. A shorter bidding window, more responsive scheduling and defined processes create a win-win for all stakeholders.The RTM mechanism allows access to resources throughout the nationwide grid and promotes competitive operations in the industry. At present, volumes in the RTM are 10-20 per cent of the day-ahead market segment and we expect them to increase gradually to 25-30 per cent.
The pan-India green term-ahead market (G-TAM) in electricity is a step towards greening the short-term (exchange-traded) market. It is a historic moment for the growth of renewable energy. When renewables’ capacity achieves the target of 175 GW by 2022 and 450 GW by 2030, the full impact of this initiative would be evident. The GTAM would take away the burden on renewable-rich states and incentivise them to develop renewable energy capacity beyond their RPO. Discoms, industries, captive producers and open access consumers would be able to fulfil RPO compliance requirements in an orderly and predictable way. Together, these initiatives will be vital for the increasing share of renewable energy in the overall mix. The optimal use of the available resources will be achieved. The growing focus on the share of renewable energy underlines the relevance and importance of power market design changes more than ever.
What are your top priorities for the company?
PTC is driven by its vision of shaping and developing a vibrant power market. In this direction, PTC has been providing value through focused products (short term, long term and medium term) and services to its clients. The provision of trading solutions to promote renewable energy and the resolution of stressed assets have been natural extensions of our core business. The cross-border electricity trade with Nepal, Bhutan and Bangladesh is of vital interest to us and forms a significant component of the total electricity traded by the company. Further, PTC is constantly expanding its footprint in the electricity industry through power portfolio management, consultancy services and energy efficiency services.
Our initiative of creating a third power exchange in partnership with two leading business organisations will open up new possibilities for clients to hedge their volume and price risks. It is, therefore, a very important initiative for our envisaged future. It would enrich the possibilities for trade in conventional as well as structured products.
Going forward, focusing on the core and efficient capital allocation will be the two pillars of our efforts to create value for the company in the coming years.
What is your outlook for the power sector in the near, medium and long term?
The power sector is undergoing a transition, with unprecedented growth prospects and new challenges. With a total installed power generation capacity of 372,693 MW as of August 2020, India is now the world’s third largest electricity producer and consumer. The country is still not a power-surplus nation as it reported an energy deficit of 0.5 per cent and a peak deficit of 0.7 per cent in 2019-20. In terms of market design, the power market is undergoing a redesign process, which will impact the nature of offerings in its short-, medium- and long-term segments.
The resolution of stressed capacity is the immediate need of the power sector. There have been efforts to address this issue and PTC has played an important role as an aggregator. More such efforts will be required to address the entire stranded capacity. The cash flow position of discoms, which results in delayed payments and cash flow constraints for other stakeholders, is the fundamental issue to be addressed. While the government has provided a much needed relief through the liquidity package for discoms, long-term sustainability will require more efforts. Efficiency measures are needed at all points in the supply chain, including at the consumer end in terms of metering, billing, collection, and energy accounting.
In the long term, intensive efforts for the digitalisation of processes and technology deployment will drive the scale and quality of services in the generation, transmission, trading and distribution segments.