POWER STOCKS – GETTING ELECTRIFIED!

Energy stocks are up in the green today morning, with PTC leading the pack, followed by CESC,  Coal India, Tata Power, NLC India.

All others – IEX, NTPC, Reliance Power, RTN Power, JSW Energy, JP Power, SJVN, GE T&D, PowerGrid; all are up in the green.

The BSE Utilities Index hit an all-time new high today with 23 out of the 28 stocks in the index gaining.

The ongoing power crisis in China has triggered this rally in electrical utilities stocks.

The Chinese government has begun to slash power use in certain sectors, including the stainless steel and ceramics industries. At least 20 regions have announced some degree of power curb.

Electrical utilities across the world have been rising and what we see here is a reflection of the same trend. It is not as though suddenly power “exports” will shoot up or all manufacturing business will shift to India. Its more psychological, following a global trend, indicative of a surge in electrical utility prices. But in the short term, these companies will benefit from higher prices while green energy rivals will gain in the long run.

Coal prices have more than tripled in 2021 and futures contract are up 31% in Sept due voracious demand and restricted supply. That has precipitated an electricity crisis in China, which gets around 70% of its power from coal sources. And along with this, the issue of Beijing targeting steep carbon emission reductions has added to the surge.

We have a domestic reason too for this sudden surge in electrical utility stocks – Electricity (Amended) Bill 2021.The Bill did not go through in the monsoons session but when it does, the changes are sweeping, much needed but we need to tread carefully too. This Bill is being discussed today among marketmen as power stocks power up!

A look at the provisions in the Bill:

Electricity distribution to be delicensed – no longer monopoly of states, open to competition.

Consumers will be able to choose discoms, similar to what we have in telecom

Smart meters to plug leakages

Easy and quick resolution of disputes

Right to 24x7 electricity

Rewarding consumers shifting to solar

Provision of a universal service obligation fund, to be managed by a government company, to meet any deficits in cross-subsidy.

Responsibility of fixing renewable power obligation (RPO) is shifted from state commissions to the central government.

Delicensing has been on the discussion table for almost a decade now but it cannot be rushed through with little thought. Increasing competition is a very good move but its pointless if overall cost of electricity will remain unchanged as long as the 70-80% cost paid for power procurement does not change. Delicensing without focus on developing effective wholesale electricity markets, along with efficient fuel markets is futile. A broad guideline to reduce tariffs could have been part of the proposed amendment bill.

The focus of this Bill is competition but hopefully, it will not become a mess like what we had in telecom. Govt should withdraw and not keep on poking and intervening; it needs to hand over the reins completely and fully to the Electricity regulatory commission, giving it the full autonomy and respecting its independence too.

The Bill has the right ingredients to propel the Indian economy to the next growth level and if implemented right, the next decade could be the best for the sector.