Energy landscape of India - India is World's 6th largest energy consumer, accounting for almost 3.4% of the global energy consumption. Due to the strong increase in economic activities seen in the last decade, the demand for energy is growing at a much quicker pace. About 76% of the electricity consumed in India is generated by thermal power plants, 21% by hydrolectric power plants and almost 4% by nuclear power plants.
In Mar 2009, the installed power generation capacity of India stood at 147,000 MW while the per capita power consumption stood at 612 kWH. The country's annual power production increased from about 190 billion kWH in 1986 to more than 680 kWH in 2006.
India, starving for Energy -
Despite an ambitious rural electrification program and huge additions in power generation capacities, millions of Indians still have no access to electricity. While 80 percent of Indian villages have at least an electricity line, just 44 percent of rural households have access to electricity. According to a sample of 97,882 households in 2002, electricity was the main source of lighting for 53% of rural households compared to 36% in 1993.
The gap between electricity supply and demand nationwide averages up to 16 percent at peak times, according to government figures, and 25 percent according to industry estimates. And according to the Planning Commission of India, around 600 million people -- more than the entire population of the European Union -- are not even on the national grid. In some states, like poverty-hit Jharkhand, 90 percent of rural households have no electricity and still use oil lamps for light.
India's industry is having to incur a direct loss of Rs 43,000 crore or nearly $9 billion due to shortage of power. The loss amounts to 1% of India’s GDP. This is the direct operating cost to the companies and does not include the opportunity cost that may be lost if there was sufficient power. The highest loss is incurred by the power intensive sectors like manufacturing which accounts for 35 per cent of the total loss, small and medium enterprises, second highest, at 16 per cent, hospital and hotel, retail at 12 per cent, real estate and infrastructure at 10 per cent. Other businesses like banks, pharma, IT, telecom contribute to rest of the losses.
The Answer -
When i started writing this article, i did not want to write the answer, since it was related to our Street Smart report for this month. However, finally i did not want to let down our readers.
With more than a decade of support and emphasize on wind power and non renewable energy sources, it still contributes only 7% of the total installed capacity. In fact, the capacity addition of Wind energy is on a decline for the last 3 years.The Nuclear power contributes only 2.5% currently and with a best case scenario given the Nuclear deal, it could contribute for 5% of the needs by the year 2020.
Though India may not have been blessed with Oil reserves, it has been bestowed with abundant Coal, which proves to be the cheapest way of generating power. Coal has dominated India’s Electricity sector for decades. It is set to be even more proactive for the next 15 years. The government has been emphasizing that India should make use of its vast domestic coal reserves to meet the immediate demands. It is also highly likely that the Coal mining sector will be thrown open to private sector in the near future.
So it is evident that Coal will rule the Power generation sector at least for the next 15 years. HBJ capital has identified a Small cap company and has selected it as the Street Smart Pick for the month of June 2009. This Small cap company will be immensely benefited from the above mentioned theme both directly and indirectly. An extensive research report will be sent to all the paid subscribers on this company by the end of this month.
For a non paid subscriber, should i really say that you should subscribe to avail this research report ?:)
Well..., it's part of my Job. If you are a free subscriber, please subscribe to our services to avail this research report. Please contact Sandeep @ 98867 36791 (Bangalore).
To contact the equity analyst on this story: Arun Gopalan in Chennai at Arun@hbjcapital.com
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