Positive Sentiment: Financiers’ perspective

The power sector in India is geared up to transition to a clean energy future. While the renewable energy segment will witness an increase in capacity additions, emerging sectors such as smart metering and energy storage will also gain momentum. Leading financiers share their views on the sector’s performance, the investor sentiment, key challenges and the future outlook…

What is your assessment of the power sector’s progress during the past year?

Parin Mehta

In my view, the po­wer sector’s perfor­mance in the Past year has been quite good. The two most important developments have been the courts ruling in favour of developers on tariff-related matters, and receivables being delivered quicker across most state government discoms. The introduction of the PRAAPTI portal has played a huge role in ensuring reduced re­ceivable days.

Mukul Modi

For the power sector in India, 2022-23 has been a happening year in many ways. Power generation has grown by 8-10 per cent across sources, showcasing the rising demand in India. At the same time, many states have managed to reduce their aggregate technical and commercial (AT&C) losses significantly, bringing the overall na­tional average to about 17 per cent. Sm­art metering has gathered pace, and some states have been able to make notable progress. Fu­rther, schemes such as production-link­ed incentives for ma­nu­facturing of high efficiency solar modules are likely to give a boost to do­mestic ma­nu­factu­ring, which is lagging, especially in the rene­wable energy sector. Mean­while, the government has gi­ven po­sitive indications about the closer integration of the grid in South Asia and eventual electricity trade th­rou­gh the notification of new regul­ati­ons and signing of memorandums of un­derstanding. Moreover, after a long time, thermal po­w­er has made a comeback and new su­percritical capacity additions are being planned. Further­more, the addition of renewable energy capacity and the corresponding requirement of storage solutions have received keen focus, and 2022-23 has seen a large am­ount of activity in the pu­mped storage sector.

What is the current investor sentiment with respect to the power sector?

Parin Mehta

Investors are quite bullish with respect to the renewable sector. Both domestic corporates and foreign funds have invested large sums of money in the recent past. The size of deals has also increased significantly. With the government’s target of 500 GW of renewable energy by 2030, one should expect an in­crease in funds being infused by inves­tors, as well as the advent of new inves­tors in the sector.

What are the biggest unresolved issues facing the sector?

Mukul Modi

Some of the biggest unresolved issues for the power sector in India:

  • Further improvement of the fi­n­an­cial health of discoms: Significant impro­ve­ment has been made in the distribution sector in India, to the point that AT&C losses have dec­lined to an overall average range of 17 per cent. However, to achieve a further decrease to about 12-15 per cent over the next two to three years, steps such as modernisation of distribution in­fra­str­uc­ture, smart metering and time-of-day metering are needed.
  • Faster implementation of storage sol­utions: Due to the overall target of ad­ding 500 GW of renewable energy ca­pa­city by 2030, new challenges in the form of grid stability and load ma­nagement are arising. Therefore, faster implementation of affordable storage solutions, including battery and pum­ped storage, is the need of the hour. Fur­­th­ermore, in order to impro­ve their viability, new commercial solutions pertaining to monetisation of ancillary ser­vices (spinning reserve, reactive power, peaking supply, etc.) are crucial.
  • Matching investments in transmission and distribution infrastructure: The huge generation capacity addition in the power sector is likely to pose challenges for the transmission and distribution segment. Further, in­vestments in the transmission and distribution segment, especially in the smart network, are essential to herald the next generation of reforms in the power sector in India.

What is the investment outlook for the sector over the next one or two years?

Parin Mehta

The outlook for the sector is looking posi­tive. The key opportunity areas include:

  • Consolidation of operational assets, predominantly through infrastructure investment trusts.
  • Replacement of captive thermal power with renewable energy through commercial and industrial power purchase agreements.
  • Investments in large pumped hydro projects.
  • Increased participation in round-the-clock bids.
  • Investment in power storage technologies.

Mukul Modi

The power sector in India is now geared up to resume its journey into the future. While more and more capacity addition is expected in the renewable energy spa­ce, increased activity shall also be witne­ssed in emerging sectors such as energy transition, smart metering and storage solutions. In addition, investment in the  supporting infrastructure, especially in the fields of transmission and distribution, is expected to increase, corresponding to greater installed capacity. More­over, as­so­ciated sectors such as electric ve­hicles (EVs) and EV charging are ex­pected to witness fast-paced investment. Besid­es the­se new sectors, consi­dering the huge de­mand jump and slippages in the ca­pacity addition targets of non-conventional sectors, some investment in conventional hy­dropower and coal-ba­sed thermal ge­neration is also likely to be witnessed. Th­erefore, the sh­ort to me­dium-term inve­st­ment scena­rio for the power sector in India is optimistic and the sector is poi­sed to attract substantial investment.