NTPC To Adani Power — How Emergency Supply Rules Will Benefit Power, Gas Firms

Companies like Tata Power, NTPC, Gail (India) stand to benefit if the government directs Section 11 towards gas based power plants for the summer.

<div class="paragraphs"><p>(Source: Tata Power Website)</p></div>
(Source: Tata Power Website)

The Power Ministry of India is set to conduct a meeting with gas based power projects to examine whether directions under Section 11 of the Electricity Act, 2003, need to be issued for the upcoming summer.

This comes after the Indian Meteorological Department projected higher than normal maximum and minimum temperatures across the country except in select isolated pockets of Northwest, Northeast, Central and Peninsular India.

A possible issuance stands to benefit not only power operators but also gas transmission companies.

Peak Electricity Demand

The IMD's projection translates to a higher than historical electricity demand in the upcoming summer season, which is also reflected in the rising trend of peak demand in recent months, during both solar hours and non-solar hours.

Peak energy demand in FY24 stood at 2,43,271 MW, up 12.7% year-on-year, while peak demand met grew by 13.9% in the same period.

What Is Section 11

Section 11 of The Electricity Act, 2003 authorises the government to direct generating companies to operate and maintain any generating station according to the issued directions. This essentially allows the government to take temporary control over power generation in critical situations.

While for imported coal-based power plants, Section 11 directions have been extended till September 2024, government is now considering if directions need to be issues to gas power plants.

What Is The Government's Plan

The government has shifted the planned maintenance of power plants to the monsoon season. It has also directed a Uniform Technical Minimum Loading of 55% of unit capacity for all coal-based thermal power plant.

Keeping with India's renewable energy focused agenda, growing solar capacity and generation could help with power generation during peak sun hour, but during non-solar hours, gas power based plants come into play. These plants emit 50% less CO2 into the atmosphere compared to coal based plants.

Gas Based Power Plants In India

As per a government notification in March 2023, the Central Electricity Authority under the Ministry of Power monitors 62 gas based power stations. Total capacity of these stations stands at 23,845 megawatts.

The requirement of gas for these power plants at a 90% Plant Load Factor is 115 Million Metric Standard Cubic Meters per day. The plants, however, are currently under-utilised. Between April 2022 and January 2023, gas based capacity of 9,308 megawatts generated no power. The total gas available to the power sector stood at only 16.16.

As per a Citi note on Apr 4, India's gas based power plants are averaging a plant load factor of 14% in the 11MFY24. This compared lower than the 24% and 17% plant load factor in FY21 and FY22.

Gas Power Plant Operators

Any direction under Section 11 towards gas based power plants will benefit operators like NTPC Ltd., Adani Power Ltd., Tata Power Co., JSW Energy Ltd., and Gujarat State Petronet Ltd. The companies will likely see a rise in electricity generation, given the potential mandate of increased operation at the plants. This could translate to higher revenue.

Tata Power and Adani Power have facilities in Mundra, which currently do not have long term power purchase agreements. Direction under Section 11 could potentially help these companies recover costs.

As of FY23, NTPC had a total installed gas-based power generation capacity of over 7 GW, while Adani Power has capacities over 2.2 GW. Tata Power's capacity was at 1 GW.

Gas Companies: Gail (India)

A potential increase in gas based power generation could lead to increased gas demand.

Gail (India) Ltd. stands to be a major beneficiary as it enjoys 74% market share in gas transmission and 60% market share in gas marketing, according to Nirmal Bang.

A plant load factor mandate in the range of 20-40% would create demand for 9-12 Million Metric Standard Cubic Meters of additional gas per day. An increase in gas transmission volumes thereby also has a significant impact on the company's financials, as the the gas transmission segment accounts for an average 35-40% of the company's total Ebitda.

Citi also noted that companies like Gujarat State Petronet Ltd. and Petronet LNG Ltd. will also benefit.

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