GAIL: Here's How It Can Benefit From Peak Electricity Demand In Summer

Shares of GAIL (India) Ltd. surged on Wednesday as the Ministry of Power will reportedly consider invoking an emergency rule to run gas-based power plants in the summer in a bid to ensure uninterrupted supplies.

The move came after the India Meteorological Department forecasted above-normal maximum temperatures over much of the country in the April–June period.

The Union government is considering issuing directions to gas-based power plants under Section 11 of the Electricity Act. The section basically authorises the government to direct power generation companies to operate and maintain any generating station as per its directions. This essentially allows the government to take temporary control over power generation in critical situations.

As of March, the Central Electricity Authority monitors 62 gas-based power stations. The total capacity of these power-based stations stand at 23,845 megawatts.

The requirement of gas for these power plants at a 90% plant load factor is 115 million standard cubic metres of gas per day. However, the plants are underutilised.

In the April–January period of financial year 2023, gas-based capacity of 9,308 MW has no generation of power. The total gas available to the power sector stood at only 16.2 mscm of gas per day in the period, according to a PIB release.

Higher power generation at gas-based plants translates to higher demand for gas. In the April–January period of fiscal 2023, the PLF at the gas-based power plants stood at only 12%.

The plant load factor's of India's total 25 GW of gas-based power capacity are averaging just 14% in 11MFY24, according to Citi. This compares lower to the 24% and 17% average plant load factors in FY21 and FY23, it said.

Based on assumptions that the government mandates a higher PLF in the range of 20–40%, 25–50 mscm of gas per day would be required. This translates to an at least 9 mscm of additional gas per day.

GAIL has a 74% market share in gas transmission and a 60% market share in gas marketing, according to Nirmal Bang Institutional Research. Therefore, it stands to benefit from higher demand for gas from the gas-based power plants.

An increase in gas transmission volumes also has a significant impact on the company's financials since the gas transmission segment accounts for an average 40% of the company's total Ebitda.

Even a 1% increase in volume corresponds to a firm demand in the power sector, Gail (India) told NDTV Profit. The company also noted that the benefit would depend largely on sourcing gas from the spot market for LNG. "This means two to three LNG ship vessels, say 85 MMSCM, in one ship load,"  the company said.

The benefit would depend on what price the spot is available in the prevailing market at that point, highlighted Gail (India).

Shares of GAIL were trading 3.08% higher at Rs 188.95 apiece on the NSE, compared to a flat benchmark Nifty 50 as of 2:44 p.m.

Twenty out of the 35 analysts tracking the company have a 'buy' rating on the stock, eight recommend 'hold' and seven suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 3.2%.