Power Sector Focus: Market Price Shift Boosting Opportunities, Says Gautam Adani

A surge in Indian commercial and industrial-scale power agreements has aided the country's power sector to show significant growth with over 50% volumes now traded on demand-supply platforms, according to a note by Jefferies. The brokerage met Adani Group Chairman Gautam Adani recently and picked his brain on where the sector is headed from here.

In India, the volumes traded outside long-term power purchase agreements has increased to 15% from 8% in 2010. Moreover, the trend of corporates entering into contracts and the rise in exchange trading volumes are making the way for market-based price determination and this shift provides power companies in India with new opportunities for profitability, as per Adani.

This is one of the most exciting times for the energy sector in India, with demand driven by manufacturing, households, and data centres should accelerate growth, particularly in renewable energy, the Adani Group Chairman told Jefferies India Pvt. in their meeting.

The Adani Group's growth strategy is holistic, focusing on backward integration, scalability, controlled leverage and return on equity, according the note.

Growth, without over-leveraging the balance sheet, and generating healthy equity internal rates of return are central to the group's capacity-expansion plans, Adani told Jefferies.

Maintaining a high-quality credit rating and following the required debt covenants are important as interest costs impact project returns, the brokerage said in its post-meeting note.

The Adani Group has always shown its ability to turn vision into execution, whether through its mining projects in Australia or its market leadership in Indian logistics with Adani Ports & Special Economic Zone Ltd., Jefferies said in the note.

As one of the largest players in India's transmission sector, the group's strategic advantages, such as early land acquisition, efficient vendor arrangements, access to competitive debt like overseas green bonds, and backward-forward integration, enable it to maintain control over timelines. This helps the Adani Group to continue playing a pivotal role in India's energy segment, it said.

Electricity's share of global energy requirements has increased from 17% in 2010 to 21% today, while 79% is still met by molecules, including crude oil. Adani said corporations setting up facilities were keen to have some control over their energy needs.

Commercial and industrial-scale power agreements, mainly for renewable energy, have surpassed 5 gigawatts and are growing rapidly. The Green Energy Open Access Rules of 2022 have provided the private sector with more flexibility to access renewable energy, further accelerating this growth, according to the note.

Globally, the power sector has grown significantly, with over 50% of the volumes now traded on demand-supply platforms like exchanges in countries, such as the UK, Germany and Austria. In India, the share of volumes traded outside of long-term power purchase agreements has increased to 15% from 8% in 2010, Jefferies said.

The trend of corporates entering into contracts and the rise in exchange-trading volumes are making the way for market-based price determination. This shift provides power companies in India with new opportunities for profitability, it said.

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