The scenario for FY21 will depend on economic recovery defined by three factors: how the MSMEs are going to perform, the issue of migrant labour, and the rate of spread of Covid-19, said Prashant Jain.
JSW Energy is keen to seize opportunities thrown up by the recent reform measures taken by the government, and the improvement in economic activities with partial relaxations of lockdown restrictions. Prashant Jain, joint managing director & CEO of JSW Energy, said in an exclusive interview with Vikas Srivastava, that measures announced by the government such as privatisation of discoms and commercial mining in coal will help improve the investment climate. Edited excerpts:
Your average realisation/per unit for power sold in the March quarter increased to Rs 4.4/ kWh from Rs 4.3/kWh a year ago, but on the full-year basis, it has fallen by 6%. How do you see the power demand scenario panning out in the coming quarters?
The majority of our long-term contracts enable pass-through of fluctuations in fuel cost and exchange rates. Hence, the realisation, going ahead, will depend on movement in coal prices, the rupee and merchant prices.
Do you see any recovery in spot prices of power with the summer round the corner?
The spot price trajectory will depend on the demand pick-up in the upcoming quarters, which is contingent upon the pace of recovery of economic activities. We would like to steadily increase the proportion of long-term power purchase agreement (PPA) in our off-take mix opportunistically, which will help us minimise our cash flow volatility.
Net power generation in the March quarter was down 3% y-o-y to 4.1 billion units due to lower offtake under PPA, which was down 15% on year. How do you see it in coming quarters?
Power demand over the short-term is expected to be muted due to subdued economic activities. However, the medium-term outlook is intact, as rapid urbanisation and stabilisation of various schemes undertaken by the government such as “Power for All” and “24 x 7 Power” is expected to spur the demand. With universal household electrification nearly complete in the country, the latent power demand from rural India should also get unlocked.
Your plan to have long-term contracts share to over 90% seems to be taking longer than expected. It was 81% this quarter. Given the current situation and the focus on renewables, do you expect to tie up for around 90% of your generation via PPAs this year?
The open capacity of around 300 MW at Ratnagiri should be tied up under the long-term PPA, once the JSW Steel’s expansion at Dolvi completes. With this, our long-term PPAs will be close to 90% of our sales.
What has been the impact of Covid-19 on demand and what is your forecast for FY21?
If you look at the power demand in the March quarter of 2020, it went up by 1.9% because of strong and healthy demand in January and February, which went up by 3.8% and 11.8%, respectively. But in March, it came down to 8.4%. In fact, in the last week of March it went down by 27%. However, since then it has been improving. In April it was down by 23%, and in first 15 days of May it was down by 19%; so there is an improving trend from the last week of March to May first week.
We believe as the lockdown is eased, power demand will recover. The scenario for FY21 will depend on economic recovery defined by three factors: how the MSMEs are going to perform, the issue of migrant labour, and the rate of spread of Covid-19. So, it will be a hazardous guess to make for future demand, because majority of the big industrial demand comes from the captive power.
Are you interested in discoms being privatised in the Union Territories?
We would like to evaluate as and when such opportunities come out. I am confident the measures taken by the government are steps in the right direction, the power sector is bleeding at this point of time due to poor health of discoms. So, if they are privatised and commercial mining in coal is allowed, both the problems — financial losses of discoms and coal shortage — faced by power sector will be addressed.
Do you think the discoms’ privatisation model can be replicated in major cities and states?
There are very good examples in front of us like Delhi, Mumbai, Kolkata and Ahmedabad (for privatisation). I believe it may not solve the entire problem, but it is a step the in right direction. The need of the hour is quick and prompt execution. We believe the government is keen on doing it, but power being a state subject, it requires pro-active steps by the states as well. I think government was having its own share of problems and the current crisis has only accentuated it. This is a very good opportunity for states to come forward and undertake the reforms, especially since part of their higher borrowing limit is linked to reforms in the power sector.
Do you think one-grid-one-tariff policy is viable?
I think we are far from that due to the federal structure where alignment between all the states is tough. But I see if there is privatisation of the discoms and the consumers are given the choice to select the generator or the supplier, there will be real reform in the sector. The transparency will bring more investors who are at present not interested to invest in the sector. These reforms will bolster investment as well as help India become a $5-trillion economy.
How do you see the opening up of commercial mining in coal? As many as 50 assets are going to be auctioned off soon.
We will look at the logistics costs as our thermal plants are strategically located for dependence on imported coal. So, we will have to see if it will make economic sense to switch over to domestic coal. If it will, then we will either participate in tenders or tie up with someone participating in commercial mining, who would be willing to supply to us. We would be looking at Odisha-based mines for our Vijayanagar plant while, for Maharashtra, we would also look at western coal fields.