Collectively all discoms owe USD 40 Billion. The power sector is on the verge of collapsing as the debt owed by discoms have ballooned past any reasonable target. Govt recognises this and wants to transform the entire sector. This year's budget had big allocation towards power sector and more policies are coming that are aimed to move the sourcing of power from 25 year PPAs to on exchange sourcing. Short term electricity is already sourced from exchange, most likely this or next year we will see IEX launching long term energy trading contracts that will move the bulk of sourcing from PPAs to exchange.
Hi Vishvesh, realize its a late response and I completely missed replying to you. Sorry about that.
In my view, public transport will be the first to get electrified. BYD of China is doing some incredible work in that and is one the leaders in the world. Check them out.
Hi Yashesh, realize I missed responding to you on this.
So fixed rate agreements are binding in nature and doesn't benefit the customer. Imagine if you had taken a fixed rate home loan from a bank in 2015 when home loan rates were around 10%. You certainly will not be happy today paying an EMI on a 10% loan when today home loans are available at less than 6%.
Exchanges solve this problem for industrial users. They have the freewill to enter into long duration contracts (when released on IEX) and exit whenever they want to without signing a 25 year fixed rate agreement. Prices on exchange are determined by actual demand and supply forces rather than some arbitrary agreement.
Though you mentioned about tata power as one of beneficiaries of renew trend , i have been reading & thinking about it & also connected with some of my friends in NTPC & Ministry of renewable power etc to have deeper understanding .
Based on my limited understanding ,i am not aware of any utility company worldwide which has created a lot of weath for owners due to regulatory nature of business (ROE from 5-10%).
Tough Tata power has dominant market share currently in renewables & huge aspirations too but i still have doubts on value creation possibilities.
Based on scuttlebuttle ,the payback period for Solar plant comes to 8-10 years( so mediocure ROE/ROCE) .
Even tough they grow the renewable portfolio (tender driven business B2B & Solar rooftop B2C )to multifold from current position , due to low ROE ,will the growth necessarily convert in to value creation since they will have to fund majority of Capex through debt/equity/internal accruals ?(As you know ROE/ROCE has to be significantly > than cost of debt/equity for value creation ).
Even in solar B2C business ,they are smaller competitors who are much more agreesive in pricing of end products .
Please refer to opinion of magenta power owner on EV charging infra economics .
Smart meters seem to have a positive impact on economies of discom by reducing billing/payment cycle & making power theft difficult .
Just wanted to understand your views on main drivers that would drive bottom line since the renewable /ev space does seem to be low ROE/ROCE business -
is it operating leverage /debt reduction /re rating /operating margin expansion etc ?
Your answer would help in broadening my understanding on how the tata power would pan out in numbers not narrative .
Collectively all discoms owe USD 40 Billion. The power sector is on the verge of collapsing as the debt owed by discoms have ballooned past any reasonable target. Govt recognises this and wants to transform the entire sector. This year's budget had big allocation towards power sector and more policies are coming that are aimed to move the sourcing of power from 25 year PPAs to on exchange sourcing. Short term electricity is already sourced from exchange, most likely this or next year we will see IEX launching long term energy trading contracts that will move the bulk of sourcing from PPAs to exchange.
I also feel a lot of start ups like Revolt motors will face huge demand due to electric two wheeler
Unseen angle here..i see a lot of 16 -18 kids who can't get driving license.. will be driving electric two wheelers.
Don't you feel that more investment will be into public transport??
With more electric buses and Metros.. before the actual EV vehicle ownership starts...?
And thanks for the well researched and well written article.
I am new here and this is the first post i have read and i am blown away!!
Hi Vishvesh, realize its a late response and I completely missed replying to you. Sorry about that.
In my view, public transport will be the first to get electrified. BYD of China is doing some incredible work in that and is one the leaders in the world. Check them out.
Thank you and welcome to the publication!
In Indian Energy Exchange case you have mention that more of energy will be sourced from exchange rather then fixed rate agreements .
What's reason behind this ?
Plz explain it.
Hi Yashesh, realize I missed responding to you on this.
So fixed rate agreements are binding in nature and doesn't benefit the customer. Imagine if you had taken a fixed rate home loan from a bank in 2015 when home loan rates were around 10%. You certainly will not be happy today paying an EMI on a 10% loan when today home loans are available at less than 6%.
Exchanges solve this problem for industrial users. They have the freewill to enter into long duration contracts (when released on IEX) and exit whenever they want to without signing a 25 year fixed rate agreement. Prices on exchange are determined by actual demand and supply forces rather than some arbitrary agreement.
Your waree renewable was best pick ... Unfortunately I didn't invested ... Great work ..
Hi Tar
Though you mentioned about tata power as one of beneficiaries of renew trend , i have been reading & thinking about it & also connected with some of my friends in NTPC & Ministry of renewable power etc to have deeper understanding .
Based on my limited understanding ,i am not aware of any utility company worldwide which has created a lot of weath for owners due to regulatory nature of business (ROE from 5-10%).
Tough Tata power has dominant market share currently in renewables & huge aspirations too but i still have doubts on value creation possibilities.
Based on scuttlebuttle ,the payback period for Solar plant comes to 8-10 years( so mediocure ROE/ROCE) .
Even tough they grow the renewable portfolio (tender driven business B2B & Solar rooftop B2C )to multifold from current position , due to low ROE ,will the growth necessarily convert in to value creation since they will have to fund majority of Capex through debt/equity/internal accruals ?(As you know ROE/ROCE has to be significantly > than cost of debt/equity for value creation ).
Even in solar B2C business ,they are smaller competitors who are much more agreesive in pricing of end products .
https://auto.economictimes.indiatimes.com/news/auto-technology/providing-ev-charging-infra-in-india-is-like-doing-social-service-magenta-power/85496377
Please refer to opinion of magenta power owner on EV charging infra economics .
Smart meters seem to have a positive impact on economies of discom by reducing billing/payment cycle & making power theft difficult .
Just wanted to understand your views on main drivers that would drive bottom line since the renewable /ev space does seem to be low ROE/ROCE business -
is it operating leverage /debt reduction /re rating /operating margin expansion etc ?
Your answer would help in broadening my understanding on how the tata power would pan out in numbers not narrative .
Other than the companies you have mentioned above, are there any investment opportunities in the wind and hydro renewable space?