NHPC Stops Supply To Distribution Companies

According to the news published in the Economics Times, NHPC has stopped power supplies to BSES Delhi (a subsidiary of Reliance Infrastructure) and a distribution company in Uttar Pradesh. Instead, the company has started selling this electricity in the open market (power exchanges) at a higher price.  According to the same report, BSES Delhi owed about Rs 460 crore to NHPC, while the power utility in UP owed Rs 490 crore.

Power trading is a comparatively new concept in India, introduced under the Electricity Act, 2003. Under power trading, power generators with a capacity equal or greater than 1 MW can sell their power in the open market. Power trading volumes fluctuate, but during power shortages there is spike in the volumes. The prices also fluctuate according to the demand-supply ratio. The contracts quoted are usually for a day ahead market

To access the impact of this development, we, at DSIJ, accessed some of the reports published by CERC. According to these reports, power trading volumes have increased from 1611.92 million units in Dec 2011 to 1895.48 MU in Jan 2012. The reports also say that 95% of these volumes have been contracted at over Rs 4 per unit. The OTC contracts (same day contracts) have also shown prices of over Rs 4, indicating better realisation for the power generators. The forward price for the month of Apr and May is also seen at over Rs 3.

Power Trading Volumes And Prices In Summer 2011

Source: CERC Market Monitoring Cell

In summer 2011, the volumes remained quite strong. For most trades, the prices stood at over the Rs 4 per unit mark. The volumes were high in Apr 2011 and the price crossed the Rs 8 mark in May.

Coming back to NHPC, which is the state power generator and the largest hydropower utility in the country, we see very little favorable impact of this development on its revenues. Though there may be a volume spike, it will not be like that of last year. Also, the prices may not touch the Rs 8 mark, as there is a prolonged spell of winter in the country. Also, many large capacities are getting commissioned lately.

We made an attempt to find out how much capacity will be under the open access, but the management remained unavailable after several attempts to contact them. NHPC currently has 4502 MW of operating capacity, and according to the media report, about 400 MW of capacity has been registered with the power exchanges for power trading. With the diversion of the BSES supply, there would be further addition to its tradable capacity.

We expect CERC or the govt. to come to the rescue of BSES Delhi as this is summer time and elections are going on in UP. As of now, we don’t see a very favourable impact of this move on the revenues of NHPC.

In the Q3 results, NHPC has already reported a decline in its profits. Also, hydropower generation is impacted in summer, as water levels go down and water is required to be supplied for civil needs. We maintain our ‘avoid’ call on this scrip.