Top Stories
Power Grid Collapse: Is another Power Crisis brewing?
Northern Grid collapsed on 30th July, 2012, with subsequent collapse of Eastern and North-Eastern grids, it led to a complete black out situation which took more than 24 hours to recover. The Northern grid consists of nine states, such as Uttar Pradesh, Haryana, J&K, Punjab, HP, Delhi, Uttarakhand, Rajasthan and Chandigarh. This is the first time in the Indian Power Grid history that three grids have collapsed simultaneously.
Traditionally, all the Northern states have been power deficit, however, this year, the delayed and lower monsoon played spoilsport to worsen the demand supply mismatch. CARE Research believes that grid collapse occurred due to problems such as 1) continued under investment in generation capacity by northern states leading to acute power deficit 2) stagnant hydro capacity unable to address rising peaking demand and 3) recurring and excessive power overdrawal by states significantly beyond scheduled limits.
Stalled capacity addition from states have pushed them to corner
The major structural reason for the grid failure stems from the fact that most of the states, which are overdrawing power from grid compared to the scheduled limits have hardly invested in capacity addition in the past few years. Please refer Table-II which discerns the following major trends in YoY capacity addition growth in June 2012 such as- 1) State generation sector of all of the major northern states (Except Delhi) have either added nil or negligible capacity to contain rising power demand 2) Most of the capacity addition has been from the private sector and 3) muted capacity build-up (such as hydro or gas) to address peak power demand.
Additionally, the peak power deficit issue in these states was further accentuated by the diminishing reservior levels of the storage based hydro power plants due to current dry spell with most of the northern states receiving low rains this year. Table III illustrates the 70% reduction in power generation from hydro power as on 29th July 2012, which has added to acute shortage in peak power situation resulting into excessive power overdrawal by states such as UP and Punjab. Further, these agricultural states with current sowing season are yet to ration the water usage, which led to sharp reduction in water head levels in the dams directly impacting the power generation.
No investment in T&D, lacking grid discipline
Over the last decade, most of these state distribution companies remained in precarious situation with negligible reduction in AT&C losses (AT&C losses>35-40%), stagnant tariff vis-à-vis rising power purchase costs, irregular subsidy payments by states, high cross subsidization resulting into severe cash crunch. Recently, the distribution companies of the northern states such as Haryana and UP have even filed for debt restructuring. Thus, decade of under investments in T&D resulted in poor management of load forecasting abilities with 1) lack of accurate control over load management at feeder level to ascertain exact nature and behavior of demand and 2) lack of investment in T&D equipments i.e. under frequency relays which would have averted grid collapse by segregating the notorious load sections from the regional grid. Interestingly, these states are not even left with an option of buying power from open market as the state grid is overloaded with no spare capacity to wheel the power. Consequently, despite penalty mechanism introduced by the regulator in the form of Unscheduled Interchange (UI), it is cheaper for these states to overdraw power from the grid rather than buying power through other channels.
States such as Punjab, Haryana and UP are agriculture based with large dams playing vital role in irrigation of farmlands. Thus, agricultural pumping power load increases sharply in the Rabi sowing season. Due to lower monsoon this year, the northern states’ power demand remained at elevated level (~5GW peak deficit in July 12) leading to exacerbated power deficit situation.
Source: CARE Research
In Focus Stories
IIFL recommends 'Buy' NHPC
IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Buy ” NHPC.
According to IIFL report, - NHPC’s power generation capacity declined 2% YoY in 1QFY13, owing to delay in melting of snow. However, this marginal decline in generation was not only offset by a 300bps YoY improvement in the plant capacity index but also by other incentives.
NHPC’s reported PAT declined 15% YoY in 1QFY13, but profit growth (adjusted for one-offs in 1QFY12 and 1QFY13) increased 7% YoY.
YTD FY13, NHPC has added capacity of 231MW; the company has maintained guidance to add further 981MW in subsequent quarters. If achieved, standalone operational capacity will increase by 33%.
During the conference call hosted by us, the management stated that it expects CERC to clarify the final modalities on recovery of water cess soon and also consider its request to include pondage-based projects for earning incremental ROE of 1% (in addition to the pump storage hydro facilities currently). Further, the management expects to recover outstanding dues from SEB over the next 8-10 months, report stated.
Pick-up in capacity addition bodes well for the stock’s outperformance. At 0.7xFY13ii BV, valuations are attractive. A dividend payout of 35% implies dividend yield of ~4% in FY13ii. BUY, brokerage added.
The report was published by IIFL’s Institutional Equities Research desk
Domestic News
Centre, Northern states agree on 12-point agenda to avoid power crisis
The Minister of Power, V Moily held a meeting in the capital today, with the Chief Ministers and Power Ministers of the North Indian States affected by the power grid collapse on 30th and 31st of the previous month . The States that had been affected were Jammu & Kashmir, Uttarakhand, Punjab, Himachal Pradesh, Uttar Pradesh ,Delhi, Haryana and Rajasthan.The text of the Minister’s speech is given below.At the end of the deliberations the Centre and the concerned States agreed to abide by a 12 Point Resolution which would ensure that such breakdowns in the Power Grid do not recur again.
Earlier in the day Power Secretary, P Uma Shankar held detailed discussions with Chief Secretaries and Power Secretaries of the concerned States on the 12 Point Resolution to ensure future compliance by States. The text of the 12 Point Resolution is given below.
Later in the day the Power Minister briefed the media about the deliberations leading to the unanimous 12 Point Resolution.The Minister also announced to the media the Notification for Constituting an Expert Committee to enquire into the Power Grid Disturbance on 30th and 31st of July 2012.
Long-Term Indian Power cuts solution to take years: Fitch
The Indian government will push through some emergency fixes in response to the recent power outages, which affected 600 million people in northern India, but the much needed long-term solution will take two years or more to put in place, Fitch Ratings says.
We expect the government to immediately implement short-term reforms, such as better grid discipline via increasing incentives and penalties. These will go some way to reducing the risks of such large-scale outages happening again, but significant structural changes are needed and these cannot be made within one or two years.
Fixing the poor financial condition of the utilities so that they can upgrade their infrastructure and improve their operating performance, and improving the supply of coal for the generation of power both require long-term measures.
The government is already in the advanced stages of formulating a long-term plan for restructuring the debt of state power utilities in Tamil Nadu, Uttar Pradesh, Rajasthan, Madhya Pradesh, Andhra Pradesh, Haryana and Punjab. The proposed packages seek to shift half of the debt burden to the respective state government, and to postpone repayment of principal by three years to allow loss-making utilities to achieve an operational and financial turnaround. Structural reforms focussed on regulation, tariff and technical inefficiencies will accompany financial restructuring so as to restore the viability of the state power utilities.
India, Chile to jointly enhance renewable energy capacity
A high powered delegation from Chile, lead by their Minister of Foreign Affairs, Alfredo Moreno Charme met Dr. Farooq Abdullah, Minister for New & Renewable Energy and other senior officials of the Ministry in the capital today. The two sides held detailed discussions on cooperation between India and Chile in the field of Renewable Energy. Dr. Farooq Abdullah informed the Chilean Foreign Minister and the Delegation about the progress made by India in different fields of Renewable Energy and suggested exchange of expertise between the two countries for mutual benefit. He particularly mentioned the advances made by India in the field of wind and solar energy under the Jawaharlal Nehru National Solar Mission. Earlier the Chilean delegation said that the requirement of power in the northern areas of Chile is going to increase sharply. This is the area where there is a preponderance of mines in Chile. Dr. Abdullah suggested that solar energy could provide a major share of increased requirement of power and India would be willing to assist in this endeavour.
The Foreign Minister of Chile invited Dr. Abdullah to visit Chile in the near future. Dr. Abdullah said that in support of the UN Declaration designating 2012 as the “International Year of Sustainable Energy for All”, India is holding an International Seminar on Energy Access in New Delhi. The Seminar proposes to bring together millennium stake holders, ministers, senior policy planners, multilateral and bilateral agencies and civil society organizations. Dr. Farooq Abdullah suggested that this occasion could be an ideal platform for defining the “way forward” for cooperation in the area of Renewable Energy.
Maldives govt halts work on GMR's Male airport project: reports
Maldives government has temporary halted work on GMR's $500 mn Male airport project and the company has moved an arbitration court in Singapore over development charges, according to reports.
Reports stated that GMR had won the airport contract when government headed by former President Mohamed Nasheed was in place, but the project,began facing problems soon after a regime change in the country earlier this year.
The Construction for the new terminal was part of the airport modernisation packagem, report says.
There are reports that it started in December last year and is scheduled to open in 2014.
EGoM approves expansion plans for Delhi Metro phase-III
Power Secy assures level playing field for domestic transformer makers
Govt to promote clean coal technology
First Solar eyes JV, manufacturing in India
SSER commissions 35 kwp Solar Roof Top Project at Gurgaon
GMR Infrastructure plans to raise Rs25bn
Results watch
Punj Lloyd Q1 revenue at Rs27.76bn
Punj Lloyd Group, the diversified engineering, procurement and construction conglomerate, today announced its financial results for the first quarter of FY 2012-13 at its Board of Directors’ meeting.
Consolidated Results –
Q1 FY2013 Financial Highlights
(All comparisons with Q1 FY2012)
Revenues for the quarter at Rs. 27.76bn as compared to Rs. 22.63bn during the corresponding period last year(Q1 FY2012)
EBIDTA at Rs. 288 crore compared to Rs. 199 crore in Q1 FY2012
PBT at Rs. 15 crore compared to Rs. 9 crore in Q1 FY2012
PAT at Rs. (15) crore compared to Rs. (13) crore in Q1 FY2012 (as tax provision of Rs. 30 crores has been made)
Basic EPS stands at Rs. (0.40)
GVK Power Q1 cons loss at Rs643mn
Adani Enterprises Q1 net profit at Rs4028.80 mn
ABB Q2 revenue up 10%
GMR Infrastructure Q1 cons net loss at Rs943mn
International News
SGX enters electricity market with 49% stake in Singapore’s Energy Market Company
Singapore Exchange said it has acquired 49% of Singapore-based Energy Market Company (EMC).EMC is the operator of the National Electricity Market of Singapore (NEMS), the local market for wholesale electricity trading and the first such liberalised market in Asia. Wholesale electricity in Singapore is bought and sold through the NEMS.
The acquisition marks SGX’s entry into the electricity sector, expanding its current portfolio of energy products and OTC clearing services. SGX will also be well-placed to pioneer electricity and related derivatives.
EMC will continue to run independently with its own board and management.
“The stake in EMC affirms our commitment towards building a leading presence in the energy and commodities market. The demand for electricity and energy products will increase in line with Asia’s growth and this acquisition will position SGX to take advantage of these opportunities,” said Mr Magnus Böcker, CEO of SGX.