Are Power Stocks ‘Evergreen” in India’s Growth Story?
As we know India has a very fast growing economy which requires a steady expansion of the power sector to keep pace with the growth.
Power stocks, including companies in coal, hydro, and renewable energy, have long been considered strong investment options. Now, because of the change in policies towards greener energy, there is a question whether these stocks will remain “evergreen.” Will traditional power stocks continue to shine, or will renewable energy take over?
In this article, we will explore the trends, challenges, and future of power stocks in India.
Historical Performance of Power Stocks
Over the past decade, India’s power sector has experienced significant growth, with companies like NTPC Limited and Tata Power Company Limited playing crucial roles.
NTPC’s stock has shown a 10-year compounded annual growth rate (CAGR) of 15%, reflecting steady performance. Similarly, Tata Power has maintained a stable market presence, contributing to the sector’s robustness.
Additionally, NHPC Limited, specializing in hydroelectric power, has also demonstrated consistent growth, with NHPC share price reaching an all-time high of ₹118.40 on July 14, 2024.
These trends underscore the enduring strength and resilience of power stocks in India’s evolving energy sector.
Transition to Renewable Energy
India has set an ambitious goal to achieve 500 gigawatts (GW) of non-fossil fuel electricity generation capacity by 2030, reflecting a strong commitment to renewable energy expansion.
This transition involves significant investments from major corporations; for instance, Tata Power Renewable Energy Ltd is exploring a $5.63 billion investment to establish 7 GW of green energy projects in Andhra Pradesh.
Similarly, the Adani Group is working to create a complete solar supply chain within India to reduce reliance on Chinese imports. However, the renewable sector faces challenges, including weak demand for tenders, project cancellations, and financial hurdles, which have led to significant underinvestment compared to the annual $68 billion required to meet the 2030 target.
Despite these obstacles, traditional power companies are adapting by investing heavily in renewable energy projects, aiming to align with India’s sustainable growth objectives.
Challenges in Renewable Energy Expansion
India’s ambitious renewable energy expansion faces several significant challenges that hinder its progress:
1. Land Acquisition Conflicts
Securing land for large-scale renewable projects often leads to disputes with local communities.
For instance, Tata Power’s 100-megawatt solar project in Maharashtra faced protests from farmers who had cultivated the state-owned land for generations, viewing the development as a corporate land grab.
These conflicts underscore the complexities in balancing green energy initiatives with local livelihoods.
2. Financial and Regulatory Hurdles
The renewable sector encounters issues such as weak demand for tenders, delays in power agreements, and project cancellations.
In 2024, India issued 73 gigawatts (GW) of utility-scale renewable energy tenders, but 8.5 GW were undersubscribed due to complex tender structures and interstate transmission delays.
Additionally, about 38.3 GW of projects were canceled between 2020 and 2024 due to various challenges, posing a threat to India’s 2030 renewable energy target of 500 GW.
3. Infrastructure and Supply Chain Dependencies
India’s reliance on imports for critical components, particularly from China, poses challenges to its renewable energy goals.
Efforts to build a domestic solar supply chain face hurdles such as higher costs and technological inefficiencies compared to established international players.
This dependency affects the competitiveness and scalability of India’s renewable energy projects.
Future Outlook for Power Stocks
India’s power sector is expected to experience substantial growth, driven by increasing electricity demand, government initiatives, and a shift towards renewable energy sources.
The country’s peak electricity demand has risen from 164 GW in FY18 to 243 GW in FY24, reflecting a 6.8% annual growth rate. To meet this demand, companies like NTPC are expanding their capacities, aiming for 130 GW by 2032. The government’s push for renewable energy, targeting 500 GW of non-fossil fuel capacity by 2030, presents significant opportunities for power companies.
However, challenges such as regulatory hurdles and financial constraints persist. All-in-all, the future outlook for power stocks in India remains optimistic, with growth prospects linked to the nation’s energy transition and economic development.
Conclusion
India’s power sector is crucial to its economic growth. While traditional power stocks like NTPC, NHPC, and Tata Power have been stable, the shift to renewable energy is significant.
Challenges such as land acquisition and financial issues exist, but coal remains dominant, with 30,000 MW under construction. The future of power stocks depends on balancing traditional and renewable energy sources to ensure sustainable growth.
