ETMarkets.com
Rupesh D Sankhe, V-P, Elara Capital, explains the implications of the Maharashtra governments’ power tariff announcements. Tariff reductions benefit consumers and industrial users due to lower power purchase costs, while distribution companies face challenges in cost recovery. Generation companies with renewable energy mixes and backward integration, like Tata Power, are poised to gain. Significant investments in transmission and distribution infrastructure are expected to integrate renewable energy sources, driving substantial capex in the coming years.Maharashtra has announced that power tariffs across the state will be reduced by 26% over 5 years, starting with a 1-10% cut depending on consumption in the first year itself. How meaningful is this particular move and will it have any implication on some of the suppliers like Tata Power, Adani Power?Rupesh D Sankhe: If you look at the tariff order analysis, clearly the focus is to bring T&D efficiencies. What the tariff order says is that in the last five years, we have seen 22% T&D losses. The inefficiencies cannot be passed on to the consumers. The government wants T&D losses to be around 17% for this year and eventually, it has to come down to 11%. As per the MERC regulations, it should be around 14%. So, there is a stiff target to bring down T&D losses, and that is a clearcut message. Second, the tariff order is focusing more on renewable purchase obligation (RPO), and there is a lot of gap there. Clearly the focus is on the renewable energy side. Third, they want to bring a lot of efficiency in terms of power purchase planning and resource advocacy plan management. Clearly, they want to bring efficiencies in the distribution system and that is why all the process there is either you bring T&D efficiencies or make some circles privatised for the other place, There are other players like Torrent Power, Tata Power. They are all in the distribution franchise models. So, that is the clear message there. Eventually, we will see a lot of other states also following the similar kind of orders. Out of 28 states, 22 orders have already been passed in the last one or two months. Clearly there also, we have seen the reduction in tariff because of falling renewable energy cost and more and more renewable energy, and overall power consumption. Live EventsYou Might Also Like:India wants power distribution companies to act faster on clean energy dealsBut the cut in Maharashtra is very high and they are very aggressive on the T&D losses and want to make the system efficient. So, definitely, it is a positive for private players like Tata Power and Torrent Power if more distribution circles are being thrown open for privatisation. If power prices go down, why is it good news for power producers? They will get lower realisation.Rupesh D Sankhe: Absolutely, if power prices are low, then it might be negative for the merchant based companies like JSW Energy or Adani Power because they get the benefit of higher peak demand and higher exchange price. But when the exchange price is low and there is ample supply in the system because of low power demand, then it is clearly beneficial for the exchange player like IEX, because of a lot of medium bilateral market shifts to the exchange.In the last six months, if I look at the quarterly results, their merchant volume got impacted and that is why it is negative for merchant players like JSW Energy or Torrent Power or Adani Power. Also, if power demand is low, most of the state discoms buy power from their own genco, where they have a lot of PPAs and that market also goes away and it is difficult for the imported coal power plants to stand in the merit order in a low demand power scenario. But when you say power prices are going down, it largely will not have an impact in terms of the commercial pricing. It will not have an impact in terms of the high-end residential pricing also. Can I say that?Rupesh D Sankhe: Yes, absolutely. See, this is our regulatory regime. The discom is buying power from generation companies at a regulated tariff and whatever is the fixed cost or variable cost, they have to pass it on to the generation company. Losses during transmission hurts distribution entities because they cannot recover their entire cost because of inefficiency. So, reduction in tariff is good for the consumers, but may not be good for the distribution companies as they have to recover their entire cost and to incur further capex. However, it is neutral for generation companies because they have a fixed ROE kind of model and neutral for the transmission utilities. You Might Also Like:Maharashtra announces major power tariff cut; Here’s how it will reduce your electricity billEven if you look at the tariff order, the cost subsidy charges for the industrial consumer have come down because of the fall in overall power purchase cost they are projecting till FY30. So, it is good for the industrial consumers as such because they are getting power at a significantly lower rate as compared to the previous years. But with this particular move, is not there any risk of lower realisation per unit when it comes to some of the future bidding?Rupesh D Sankhe: Definitely because a lot of tenders are coming in the FDRE front. FDRE is a mix of solar plus wind or solar battery or pump hydro storage. Here the cost is very low. And the recently discovered tariff for the FDREs is close to Rs 4.45. If you look at the conventional thermal assets with the capital cost of close to Rs 10 crore per megawatt, the tariff comes to around Rs 6-7 per unit. That is why the significant shift in the power cost can be observed in the next four to five years and the decline in tariff because a lot of contribution is from renewable energy.Now, renewable energy is just 15% of the overall consumption but by 2030, it can go up to 25% and it is coming at a 30-40% discount to conventional tariff. Secondly, you are getting a lot of efficiencies because of the installation of smart metering, upgradation of system, and T&D losses are also coming down and because of better management of power sourcing. We will see the declining trend in the overall power tariff in the coming years and that is good for the consumers and good for the generation companies. But the distribution companies have to bring that kind of efficiency and meet regulatory norms to generate better ROEs or to make the distribution activities profitable.You Might Also Like:Improve efficiency of discoms; sector needs Rs 42 lakh crore investment by 2032: Power Minister Manohar Lal to states If you are looking at benefiting from this trend, what is the first port of call? If transmission losses are taken care of, that means more money would be available for Discoms to expand. Does that mean one should bet on wire companies, cable companies, meter companies or should one bet on pure utilities because that is where the efficiency will kick in?Rupesh D Sankhe: Definitely, companies that are focusing more on the FDRE front like a mix of solar, battery, pump storage, or nuclear will clearly benefit on the generation side. On the capex side, maybe companies are more into backward integration like Tata Power with their own solar cells, solar modules, EPC, generation, assets, and everything is in place. So it will benefit.Second, on the T&D side, by 2032, close to 9 lakh crore investment will be made on the entire T&D space to integrate renewable energy, battery storage, data centre, pump hydro, and storage. Also, the system is moving from air insulated to gas insulated. So, a lot of substation upgradation is happening, a lot of high KV, more than 765 KV lines are getting added where only few players are there. So, definitely, because of high technology, HVDC lines are coming up and capex will go up significantly. If you look at the last three-four years average, the annual capex on the transmission side was only Rs 25,000-30,000 crore. In the next six to seven years, we can expect around Rs 60,000- 70,000 crore annual capex tendering on the transmission side. On the distribution side, a lot of instruments are 25-30 years old. If tariff revision is happening every year and funding is coming from PFC, REC, IREDA, I think distribution companies will have to incur capex on smart metering or transformer upgradation, new lines and everything to make their T&D norms as per regulation. So, T&D capex will be there for the next 10 to 12 years. At the same time, generation companies with a backward integration, a mix of solar, wind, pump hydro storage, battery, storage, or nuclear will benefit from this green transition.(You can now subscribe to our ETMarkets WhatsApp channel)
Read More News onRupesh D SankheElara CapitalMaharashtra power tarifftariff order analysispower generation company | Tata PowerT&D companiesAdani Power | Torrent Powerpower stocks to buyexpert view | ET NowIndian power utilities sector
(What’s moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price…moreless
(You can now subscribe to our ETMarkets WhatsApp channel)Read More News onRupesh D SankheElara CapitalMaharashtra power tarifftariff order analysispower generation company | Tata PowerT&D companiesAdani Power | Torrent Powerpower stocks to buyexpert view | ET NowIndian power utilities sector(What’s moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price…moreless
Prime ExclusivesInvestment IdeasStock Report PlusePaperWealth Edition123View all Stories