Early summer spike heats up power sector stocks

Subscribe to enjoy similar stories. The early onset of summer this year has put the spotlight on stocks of power generation companies, with the BSE Utilities index up about 14% over the past one month. Peak evening demand in the first 26 days of March at the India Energy Exchange (IEX) crossed 14GW against 8.5GW during the same period last year, as per its market data.

As a result, the peak hour price rose sharply to ₹10 per unit from ₹5.50 per unit last year. The March demand continues from the surge in February, when the average daily consumption rose by 7%, against a 3.4% increase recorded during the preceding three months, as per the Central Electricity Authority (CEA). IEX is an electricity trading platform that helps in price discovery and meets any unanticipated surge in demand.

The exchange accounts for 7-8% of total domestic power consumption, with most of the power sold through prior power purchase agreements between buyers and sellers at a fixed price. A dip in supplies from solar power in the evenings, coupled with an increase in residential consumption, has led to a significant demand-supply gap during the evening peak time. As per the CEA, peak demand is expected to reach 270 GW this summer, against 250 GW last year.

The surge comes as a boon for power generation companies, especially those with surplus capacities to be sold in the open market. Among them are JSW Energy Ltd, which has 28% of its thermal capacity available for sale as merchant power, and Torrent Power Ltd. Despite the increasing demand, there is a widening price differential in the power sector between solar and non-solar hours, the result of significant solar generation capacity addition.