Budget 2024: Increasing electricity stocks via renewable energy

Budget 2024: Increasing electricity stocks via renewable energy

Analysts anticipate increased capital expenditures for green projects, production-linked incentives for solar module manufacture, and subsidies for renewable energy.

Axis Securities' pre-budget analysis indicates that further growth in the electricity industry is anticipated in the interim budget.

With a 58% rise in funding to Rs 20,671 crore in the FY2014 budget, the electricity sector saw a major boost. Analysts predict that the FY2015 budget will continue to highlight this industry.

The forthcoming budget is just temporary, but it should set the stage for more significant policy choices down the road. The majority of brokerages anticipate that goals for capital and non-capital spending will be prioritized, along with budgetary reduction.

See also: ICRA projects that capacity utilization of thermal power plants would reach 69% by FY25.

In a recent research, Elara Capital said, "We expect the policy direction against priorities to align closely with those laid out in the recent Budget, as the government attempts to reconcile promoting growth recovery while managing challenging debt dynamics."

additional speed

Axis Securities' pre-budget analysis indicates that further growth in the electricity industry is anticipated in the interim budget. It lists as a top goal the government's increased emphasis on expanding the usage of renewable energy.

The study also emphasizes the addition of additional details on the newly introduced Pradhan Mantri Suryodaya Yojana, an initiative to lower the cost of power and increase India's energy independence.

Higher capital spending on renewable energy, incentives for green projects, and production-linked incentives (PLI) for the manufacture of solar modules are among the announcements in the interim budget that are anticipated.

The research also makes recommendations for capital expenditures on battery storage infrastructure, grid upgrade to better incorporate intermittent renewable energy sources, and dynamic feed-in tariffs. Additional planned actions include extending the exemption from interstate transmission system costs for renewable projects commissioned after June 2025 and lowering the customs tariff on solar cells from 25% to 5%.

Co-founder of RuPiting Sagar Lele istriving on the power growth narrative and intends to highlight renewable energy further, emphasizing incentives for module production and creating a renewable energy ecosystem.

The overarching goal will be to guarantee capacity so that thermal or renewable energy demands may be satisfied. In addition, he said that the 2030 targets will include building the ecosystem to support our objectives via legislative measures related to renewable energy sources including solar, wind, and green hydrogen.

According to Nuwama Institutional Equities, the government may also concentrate on developing domestic energy storage technologies and renewable energy sources, with an emphasis on material sustainability and energy security.

"There should be appropriate allocation to decentralized renewable power and electricity access to commonplace the country's green growth," it said.

view of the electric field

Given the volume of investment, government changes, and steps being taken to alleviate the power shortage—such as extending Section 11 of the Electricity Act, which allows the government to provide electricity to enterprises that generate it—Lele is optimistic about the power industry. may request that the standards be abandoned in exceptional situations. prerequisites for sustaining productivity.

According to a January 2 statement from the electricity ministry, the government has increased generating capacity by 194,394 MW during the previous nine years. Approximately 426,132 MW of electricity generating is currently installed. According to the government, of the 9,943 MW of additional generating capacity in FY2024, 8,269 MW came from renewable energy sources and 1,674 MW from fossil fuels.

IIFL Securities analysts have noted that the electricity ministry's recent remarks indicate the government may be considering expanding its coal-fired capacity in order to accommodate the growing demand.

"This is on top of the government's goal of adding over 350GW of renewable energy capacity by 2032. In light of this, the industry as a whole presents a sizable growth trajectory over the next eight to ten years, according to the experts.

A study published in November 2023 by Kotak Institutional Equities states that the government aims to reach 500 GW of renewable capacity by FY2030. To this end, the renewable auction for YTD FY24 has been raised from around 15 GW of annual run-rate to 20 GW. 50 GW yearly auction for the balance of Fiscal Year 24. It said that although large companies have plans to construct renewable energy capacity, there hasn't been much progress made in terms of execution.

Power capital spending is expected to increase over the next two to three years, according to analysts. Analysts predicted in a September 2023 Jefferies study that power capital expenditure will increase nine times between FY 2013 and FY 26 at a compound annual growth rate of 20%, from 2.2% in FY 2010–20.There was a prerequisite.

Power intensity could rise as India moves into a GDP growth period dominated by capital expenditures, according to Jefferies.

"By FY2025, we anticipate annual thermal PLF to surpass 80%, significantly surpassing the two-decade high. According to the report, power generation and T&D investment could rise by 2.2 times to $280 billion in FY24E–30E compared to FY2017–2023.

Power stocks to monitor both before to and beyond the 2024 budget

Renewable energy capacity stocks are anticipated to have some growth both during and beyond the budget, in line with estimates from the interim budget.

In a recent analysis, analysts at JM Financial said that, with NHPC's installed capacity of 7,071 MW, it is among the nation's major hydro power producing utilities, and as such, they see growth potential for the company. This represents 15% of the installed hydroelectric capacity in India.

"The installed capacity of the firm with regulated returns is expected to expand to 3,420 MW by FY2026 at 50% after a gap of 3 years, resulting in 20% in income, with projects (hydro and renewable) of 10,515 MW under development. and an 11% net profit CAGR for FY 2023–26E, according to the analysts' research. Furthermore, the only major utility with a 100% green energy portfolio is NHPC.

NHPC's Q2 earnings fell short of projections because of decreased output brought on by Himachal Pradesh's flash floods and low reservoir water levels, but Elara analysts are still bullish on the company because of the visibility of current projects.

NHPC is building 15 hydro and solar projects totaling 10,449 MW, two of which are 8x250 MW units. Two units of the 4x200 MW Parbati-II will be commissioned in early FY2015, with the other units to be commissioned gradually. The Subansiri project is anticipated to be completed in Q4. by the second quarter of FY25.

Tata electricity is one of the biggest renewable energy firms in the private sector, with a 5,500 MW clean energy portfolio that includes hydro, wind, and solar electricity.

"The corporation intends to add 1.5 to 2 GW of renewable energy yearly in order to attain its aim of 70% clean electricity production by FY 2030. Sharekhan said in a BNP Paribas research that the business intends to spend Rs 60,000 crore on capital expenditures by FY2027, with around 45% of that amount going toward renewable projects.

Power Grid Corporation of India's management has raised the company's FY24 capital expenditure goal from Rs 8,800 crore to Rs 10,000 crore. For FY20, analysts project capitalization to reach Rs 17,000 crore and capex to rise at Rs 12,500 crore.

In the long run, the business plans to spend Rs 1.9 lakh crore on capital projects over the next ten years, of which around Rs 1.7 lakh crore will go toward transmission infrastructure, Rs 0.1 crore will go toward solar power production, and Rs 0.15 crore will go toward smart metering infrastructure. There are Rs and Rs 0.10 crore. data center industry," according to a research by BOB Capital.

The firm is valued at 2.1x by BOB Capital. The paper states that Power Grid "warrants high valuations according to its outstanding ROE of 15-19 per cent, high 5.6 per cent dividend yield in FY23 as well as lowest risk profile in the power sector."

Presently, NTPC is responsible for 25% of India's total power output in FY23 and 17% of the country's installed capacity. Axis Securities analysts claim that NTPC is well-positioned to withstand the growing peak power cycle because of its sizable conventional power portfolio and robust cost-plus business strategy.

According to Axis, "this structure will facilitate growth led by renewable energy and contribute to stable cash flows."

NTPC is currently building a 10 GW thermal capacity project that should be operational by FY26. NTPC aims 60 GW of renewable power by FY 2032, up from the existing 3.3 GW.

According to analysts, sentiment and stock prices won't decline until after the elections. This segment's equities have gained well over the last year; NTPC and NHPC shares have increased by over 90% each, IREDA just listed with almost twice the returns, and SJVN has listed with nearly three times the returns.

Power capital expenditures, particularly generation, have a multiplier impact and are expected to start a ten-year investment cycle, according to the IIFL Securities analyst, which makes them a desirable investment for the sector and associated businesses.

"The weighting of the power sector in the overall market is near multi-year lows that occurred and despite the expected investments expected to meet growing demand, there can be tremendous scope towards improvement," the analysts said.