Jan 02, 2014, 11.56 AM IST
RV Shahi, Former Power Secretary says the total generation capacity at the moment is 240,000 MW, whereas the grid is drawing not more than 120,000-130,000 MW.
Tags grid unification, Power Grid Corp, RV Shahi, Former Power Secretary, plant load factor, Abhineet Anand, Quant Capital, JSW Energy, Tata Power, NTPC
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'Deficit southern states to benefit from grid unification'
RV Shahi, Former Power Secretary says the total generation capacity at the moment is 240,000 MW, whereas the grid is drawing not more than 120,000-130,000 MW.
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'Deficit southern states to benefit from grid unification'
RV Shahi, Former Power Secretary says the total generation capacity at the moment is 240,000 MW, whereas the grid is drawing not more than 120,000-130,000 MW.
PLF is the capacity utilisation factor of the power station – that has come down from 78 percent to 70 percent. So this grid interconnection is great news.
R V Shahi,
Former Power Secy
Govt of India
Also Read: Delhi govt orders CAG audit of pvt power companies
He says the total generation capacity at the moment is 240,000 MW, whereas the grid is drawing not more than 120,000-130,000 MW. It should benefit the power exchange, trading and generating companies because their plant load factor (PLF) has been coming down, he adds.
Abhineet Anand, Capital Goods Analyst, Quant Capital is bullish on Power Grid in the long term. He believes in the power sector it is best to bet on large caps. He further believes if demand rises then there will be a will need for more grids of this sort because southern market has been subdued in terms of demand.
Below is the verbatim transcript of RV Shahi & Abhineet Anand's interview on CNBC-TV18
Q: How would you analyze the impact of the grid unification which has finally come about?
Shahi: In the southern region we had lot of shortage of power and as a result power price shot up. We have been waiting for this because by 2006 we had connected all the grids of the country; north-east-west except south; north eastern has also been connected. This has been going on and the present minister was personally monitoring how best it can be preponed. The idea was that it will come somewhere in March 2014 and then ramping up to June 2014 but it has happened on the last day of the last year and that is good news. This will be ramped up further, there will be more interconnections with the southern region and as a result the shortages in southern region should reduce.
We have more than 240,000 Mega Watt (MW) of capacity in the country and at present the grid is drawing not more than 120,000-130,000 MW. So, we are very comfortable on the generation capacity that is available in the country and this transmission is going to improve the availability of power, particularly in the southern region. Power exchange should benefit, trading companies should benefit, generating companies should benefit because their plant load factor (PLF) has been coming down. In the last three years the PLF of power plant has come down. PLF is the capacity utilisation factor of the power station – that has come down from 78 percent to 70 percent. So this grid interconnection is great news.
This would be one of the largest integrated grid in the country, covering more than 240,000 MW and this MW will improve because in the last five year plan we did 55,000 MW capacity. In this five year plan we are trying to do almost more than 80,000 MW capacities and I am hopeful that in spite of many problems of fuel and other factors like financing, clearances, you will definitely get plus of 70,000 MW in this five year plan. Therefore, on generation, we are comfortable, on transmission, we had some issues. Power Grid has done a great job, they must be complimented and this is going to help solve many other problems.
Q: The positives on Power Grid and what kind of a target price would you ascribe to the stock purely on this trigger?
Anand: It is not a very big assignment for Power Grid because their capex is Rs 20,000 crore-22000 crore per annum and commissioning is also ranging from Rs 17,000 crore to Rs 19,000 crore to what street is factoring. They will be commissioning 70-80 smaller projects. So, not exactly from this project, Power Grid ascribes its value but we are positive over longer term. We have a target of Rs 118 and we have a buy. We believe that in power sector, largecaps are the best stocks to play primarily because the importance of the grid is in synchronization and there have been price differential in southern market and NEW market. So, on the Indian Energy Exchange (IEX) if you look into the price of merchant price then southern market was having a far higher degree of merchant prices so players in the merchant market, who have been selling in the southern market, might see a bit of tapering of these numbers.
Q: Should we say that JSW Energy , they operate in the south so you might see trimming of their profit and that could go to whom. Could it go to Tata Power , could it go to NTPC , could it go to some state-owned companies?
Anand: If demand remains at these levels across the country then electricity will start flowing from the excess part of the country to southern part which is the highest deficit part. If you look at this year compared to last year then deficits last year in southern market was in excess of 12-13 percent. This year it has come down to 4-5 percent because of two factors; good monsoon and low gross domestic product (GDP). I am saying the caveat is demand. If demand starts then we will need more grids of this sort because southern market has been subdued in terms of demand.
Q: So you will need more grids?
Anand: Yes, if demand picks up then more connection needs to be done so I would say that it is a bit mild negative or they generally tie-up for a year-year-and-a-half.
Q: Now that the grid is connected and power shortage issue might be solved, what does this do to the merchant power tariffs? Are you anticipating some kind of pressure now?
Shahi: It was a very small issue and some of the power companies who were selling in the south, they may have some issue but the question is that the difference in south was so big that they will continue to sell as also some of the power stations in other region will continue to sell to the southern region. Overall it should be a positive impact on most of the power generating companies and for the industry as a whole. Many of the companies, which consume power, will be a good thing; of course some of the absurd rates like Rs 10-12 that was happening, may not happen but overall it would improve.
Power Grid Corp stock price
On January 02, 2014, at 14:16 hrs Power Grid Corporation of India was quoting at Rs 101.20, up Rs 1.90, or 1.91 percent. The 52-week high of the share was Rs 116.95 and the 52-week low was Rs 86.70.
The company's trailing 12-month (TTM) EPS was at Rs 8.64 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 11.71. The latest book value of the company is Rs 51.31 per share. At current value, the price-to-book value of the company is 1.97.
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