CLSA on NTPC, Power Grid, Adani Transmission | Renewable Power Explainer

India launched the world’s largest renewable park with 30GW on 15 Dec 2020. This demonstrates the country is walking-the-talk on its energy transition by innovating the ways and means to decarbonise the economy in-line with the INDC but with affordability in mind. With the launch of this 30GW RE park, India has chosen a desert wasteland for green energy (including hydrogen), which will not only reduce land costs but also take away land acquisition challenges. CLSA sees the Khavda park costing US $20 bn reviving the power Capex cycle in FY23. The key things to watch are how to make RE more predictable and to deliver power 24x7 apart from growing power demand, which has not grown since FY19 in order to get PPAs for RE capacity. Plays on energy transition themes are NTPC (19% of park) and Power Grid (corridor).

Desert renewable power is the way to go:

One of the largest but least tapped forms of energy is solar radiation over deserts. India has 330,000 sq km of deserts spread across Thar, Rajasthan, the Rann of Kutch, Gujarat, Ladakh and Lahaul & Spiti Valley in Himachal Pradesh. Of these, Kutch is the most commercially viable site considering its resource and evacuation cost. Also, the cost of land would be 10%-20% of normal making RE affordable. Of the 330,000 sq km of desert, about 148,000 sq km is wasteland which, while perfectly suitable for solar and wind farms, does not hold much value. Fully utilised, this land can produce 4,500GW of solar and wind energy and will also allow RE developers to avoid expensive and lengthy land acquisitions. One such site is at Khavda, Gujarat.

Where is Khavda? India’s first ultra-mega RE park (UMREP)

The hybrid UMREP in the Khavda region of Kutch is billed as the largest of its kind in the world. Spread over 72,000 Ha of wasteland it is 6km from the border of Pakistan. The windmills near the border are expected to also serve as a boundary. Land has been allotted to five developers, such as Adani and NTPC, to install about 25GW of hybrid capacity as well as the Solar Energy Corporation (SECI) to install pure wind farms near the India-Pakistan border. Per government guidelines, developers must have 50% of their allotted capacity operational in three years and 100% in five years from the date of land possession. However, the key is to secure PPAs for this.

Power Capex cycle to restart:

CLSA sees the launch of 30GW UMREP costing US $20 bn (15% of NIP’s RE Capex) to kick-start the power Capex cycle in FY23, which has been in decline for the last five years. The first beneficiaries will be RE IPPs such as NTPC (28% of its pipeline) and Adani. Second beneficiaries will be equipment suppliers such as Suzlon, Inox, General Electric and Siemens, & Gamesa, Vestas, Tata, Adani & host of Chinese companies manufacturing in India. The third beneficiaries will be transmission system developers such as Power Grid (BUY) facing depleting orders and Adani Transmission (SELL). The first 10GW will need Rs70bn of line Capex, indicating Capex of Rs210bn led by Khavda UMREP. The last beneficiary would be transmission equipment OEMs, who could see orders in FY23.