One Challenging Year Ends. Another Begins
The past year has been quite an interesting time for the power sector and for JSW Energy. During the quarter, our net generation was down 3% and our EBITDA was up 4%. The profit after tax was up by 37%.
In the first half, our total net debt was reduced by Rs 1705 crore, and the net interest cost came down by 84 bps. This had primarily improved our net debt to equity gearing from 1.29 times to 1.13, which is quite a healthy one.
The volume net generation was 6.1 billion unit which was marginally down by 3%.
In the first half, we generated more than 150 million units (more than the previous year) in our hydro plants. Which is perfectly in tune with the demand from consumers, given that on pan-India basis, in the second quarter, power demand grew up by 5.2% as against 5.1% in the previous quarter.
We have been successful in finalising power purchase agreements (PPAs) with Punjab for 200 megawatts and 176 megawatts for Haryana. We are seeing the key demand drivers are coming from UP which grew by 15%, Maharashtra by 9% and Telangana which is 19%.
Despite our intention to turn things around, the power sector is in a challenging phase now. The demand for thermal energy is low as compared to the supply, and industrial pace not keeping up. A governmental push for efficiency and to top it all, a price crash, made things a lot more challenging.
An Increase in Demand
About 64-65% of our assets have been tied up in long term PPA. Given these above factors, we have a vision to take this percentage higher. For hydro power, the number is as high as 75%.
These challenges will go on for approximately the next 2 years, given that central generators are operating at 72% capacity and private ones, at 54%.
Nevertheless, there are many things that will boost power demand. Niti Aayog and IIP will get a boost due to Make in India. Further, the government’s focus on low-cost housing will also prop up demand. I would go so far to say that electric mobility, will be the new petrol – given the increase in demand for it we are foreseeing.
Expansion and Consolidation Plans
As of March 2017, we had a debt of Rs 13500 crore, and a net worth of Rs 10700 crore. This gave us a debt-equity ratio of 1.29:1, which is quite a healthy one.
Consolidation will happen for us, but it will depend on the haircuts that our lenders take. Given the shortfall in demand and the government’s push for efficiency, the price per unit at the moment is Rs. 2.5-3.0.
Efficiency and passing on savings to the consumer is one of our main drivers for consolidation. Hence, even when plant auctions do happen, we will look at acquiring plants that are near coal pitheads. And it goes without saying that we will only acquire power plants based on their merit, and in areas where Coal India has surplus coal.
Our other parameter for acquisition has been Return on Equity (RoE). Until now, the RoE has been around 6%, but we are looking to improve this to double digits.
A Push into Renewables
India has great potential to be a renewable energy market. The challenge lies in having adequate infrastructure for the storage and distribution of renewable energy power. And managing the high costs associated with it.
It will take quite a few years, about 8 or 10, for renewable energy to rise to a considerable one. Until then, thermal and renewable energy sources will coexist.
Given the high costs involved, we are planning to have an asset-light approach to renewable energy. Mainly because of the tremendous opportunities involved – in grid management, where we are seeing as much as 5 hours of solar power being generated together with thermal power, and in terms of capacity potential, which we estimate to be as high as 40 GW for rooptop solar panels.
Energy storage is also an important consideration for us, and at present, the infrastructure for it is still developing. But customers have been receptive to this new idea, and even in the future, we are confident that it won’t be capital intensive for the consumer. This is where attractive EMI plans can come in to help them make the shift to renewable sources.
While we are scaling up our own technologies, we see few opportunities for acquisition of renewable energy companies. But a few startups could be on our radar.
Deals and Agreements
Our deal with JSPL is something that the industry has been talking about for quite a while. Some might say that it has been pushed, but the fact is that it still awaits the necessary approvals.
Our deal with the Jaypee group over their Bina plant is also under way. While we are excited to make this push, we are also keeping in mind the procedural formalities, like lenders approval, just to give you an example.
The Impact of GST and Policy
GST has been good for domestic coal consumers, since power prices have come down by 6-7%. Imported coal, on the other hand, has become more expensive, and it is an area where the savings have not passed to the consumer.
In terms of policy, we see challenges in the issue of distributions and health of distribution centers. Also, we foresee that the farm loan waiver will affect our PPAs. Since the farmers themselves are given power at low prices, it is difficult to get recovery, and there is also the issue of power cuts.
The International Arena
The government has opened up multiple sectors for FDI investment of up to 100%, and that is why India offers a lot more opportunities in comparison to overseas markets. Nevertheless, there is a lot we have to catch up on.
But the encouraging indicator is our per capita power consumption, which at 1000KWh, is just half of the global average of 2000KWh. It is something that we can definitely tap into.
In short, a lot of opportunities and challenges await us in the future. And we are looking forward to them.
