India's Power Sector To See Strong Demand Growth, Renewable Energy Surge: Jefferies

Power demand in India showed positive signs in November 2024, with a 4% year-on-year growth, a significant rebound from the 2.3% decline observed between August and October 2024. This marks a return to growth after the high base of August-October 2023, which saw a substantial 17% YoY increase, noted Jeffries.

Although the demand growth in the first eight months of fiscal 2025 is slightly below the projected 7% estimate, the trend is expected to pick up momentum in the coming months, the brokerage said. Generation data for December 2024 shows a 10% YoY increase, indicating strong growth in power production.

Jefferies maintains a positive outlook on key players in the sector, with NTPC Ltd., Power Grid Corp. Of India, and JSW Energy Ltd. among its top picks for financial year 2025.

Regional demand trends revealed a varied picture. The northern region saw a 9% YoY increase in power demand, benefiting from a favourable base. While, other regions such as East, North-East, and West recorded modest growth between 2-3%. The southern region, however, experienced only a 1% rise in demand, impacted by a high base from the previous year.

National peak demand increased by just 1% YoY to reach 208 GW, with peak deficits remaining contained. Thermal Plant Load Factors stayed flat YoY at 66%, while hydro generation surged by 30% YoY, driven by extended monsoons and a low base in 2023, the brokerage said.

Renewable energy growth has been a standout, with a marked increase in auctions and awards for new projects. November 2024, alone, saw the awarding of 20 GW of RE capacity, up from just 4.3 GW in November 2023. A total of 29.5 GW of RE projects have been awarded in financial year 2025 so far, up from 20.4 GW in the same period last year. Solar and hybrid auctions have dominated this growth, accounting for 38% and 33% of awards, respectively. JSW Energy, in particular, has benefitted from this trend, securing 4.7 GW of RE capacity in financial year 2025.

The data center and artificial intelligence boom is expected to further accelerate power demand in India. The growing demand for data centers is predicted to raise India's power consumption from this sector to 6% by financial year 2030, up from just 1% in financial year 2024. The government, in collaboration with the power ministry, is developing strategies to ensure adequate power supply to meet this surge. India's data center capacity is expected to grow at over 50% annually and increase 12-fold by financial year 2030.

Looking ahead, return discipline will be crucial for translating capacity additions into sustainable growth, Jefferies said. The recent regulatory changes by the Central Electricity Regulatory Commission, particularly lowering the return on equity for transmission projects, are seen as favourable for companies like NTPC and Power Grid. Both companies are well-positioned to benefit from the lower regulatory ROE in their thermal and transmission businesses. Additionally, JSW Energy stands to gain from accelerated capacity addition and higher merchant tariffs in a tight demand-supply environment.