Reducing rainfall deficiency, better hydro generation

We released a short thematic report on the impact of rainfall on hydro power generation and merchant power rates. The key highlights are:

• Hydro power generation continues to be lower (-14% in July 2009 and -11% YTD FY10) than that in the previous fiscal.
• Hydro power generation, though lower than in the last fiscal, was maintained on account of drawal from the reservoirs. This had resulted in the reservoir levels depletion to precariously low levels of 9.9% of the full potential.
• However, rainfall deficiency, as measured by the deviation from the normal rainfall, has reduced by the end of July 2009.
• However, the distribution continues to be uneven, with the north and north-east regions facing more deficiency than the western and southern regions.
• We believe that if the rainfall quantum and pattern stays on tracks as at present hydro power generation could improve.
• We note that the short term merchant power tariffs quoted on the power exchanges are not a benchmark. This is so because of (a) the power traded on these exchanges is on a day-ahead basis, i.e. based on power to be delivered the next day. We do not yet have longer duration power trading contracts on these exchanges, and (b) the total volumes on both the operational power exchanges constitutes only 0.7% of the total power generation in India.

COMPANIES IMPACTED:

• Based on our analysis, we expect NHPC to be able to increase generation, particularly from its hydro-power plants in the north-eastern region. During Apr-Jun 2009, NHPC’s generation was 2.4% higher than that in Apr-Jun 2008, and 5.5% above the targets for the same period. Jaiprakash Hydro (JP Hydro), whose entire hydro capacities are in the northern region, was the worst affected with its hydro generation for Apr-Jun 2009 dropping 10.3% YoY to 946MUs. Tata Power’s all three hydro-power stations are in the western region and have largely not been impacted. Tata Power’s hydro-power stations generated 369MUs in the period Apr-Jul 2009, up 10.3% from the corresponding previous period.
• While utilities such as Tata Power & Torrent Power would benefit to the limited extent of merchant capacity, utilities such as GMR Infrastructure, Adani Power etc. which have larger merchant power capacities would benefit in the short term from higher merchant / spot prices. In addition, players in the metals sector such as JSPL, JSW, Nava Bharat Ventures etc., with large captive power plants, would also benefit. Power trading firms such as PTC would benefit only due to increased volumes, as their margin on inter-state power trading is capped by regulation.
• All the other major players in hydro-power generation are either unlisted or have projects which are still in the development/construction phase (GMR Infrastructure, GVK Power & Infrastructure, Lanco Infratech, NTPC etc.).