Why power stocks are a healthy combination of high growth and reasonable valuations
energy demand, and a move towards renewable energy sources are driving a dramatic transformation of the Indian power sector. Both domestic and foreign investors may find lucrative investment opportunities in this sector.
India's power consumption is expected to almost double due to urbanization, economic growth, and rising per capita income by 2040. India's growth trajectory is attracting investments across the value chain, positioning the country as a major player in the global energy markets, in our view.
There is a strong correlation between GDP growth rate and power consumption and demand. From FY17 to FY24, power demand grew at a higher CAGR of 6.2% compared to the previous seven years, FY10 to FY17, which grew at a CAGR of 4.3%. During FY10 to FY17, India's generation capacity increased at a faster rate than demand (10.7%), which led to a decrease in the use of coal plants. However, starting in FY17, this trend has reversed (demand growth exceeding capacity growth), with the use of coal plants slowly returning to 10-year highs. (Source: CEA)
India experiences two daily peaks: one during the solar (day time) and one during the non-solar periods (when there is no or little sun). Both experienced growth of more than 10% in FY24. Because thermal capacities make up around 80% of the total supply during non-solar hours as opposed to roughly 70% during solar hours, their utilization levels are higher during non-solar hours. (Source: CEA)
In FY30E, there could be a peak power deficit of about 10% during non-solar
