Weak merchant gains in Q3, but firms bet on recovery in long term

Of the company's 3,858 megawatt (MW) thermal assets, 34 per cent is in the open market as of December, 2024

Merchant power sale realisations for two major private power producers — Adani Power and JSW Energy — took a hit in the October-December quarter (Q3) of 2024-25. However, company executives and analysts remain optimistic about the segment’s long-term growth.

 

“Merchant rate was ₹6.86 per unit in the same period last year, compared to ₹4.54 now — a drop of more than ₹2 per unit, which has impacted earnings,” said Dilip Jha, chief financial officer of Adani Power, during an analyst call on February 5. The company's continuing earnings before interest, tax, depreciation, and amortisation (Ebitda) fell to ₹4,786 crore in Q3, down from ₹5,059 crore a year ago.

 

JSW Energy executives echoed similar concerns in the company’s latest earnings call. “Higher volumes across exchanges led to lower realisations in the merchant market, which impacted the dark spreads of our short-term sales,” said Sharad Mahendra, joint managing director and chief executive officer (CEO) of JSW Energy. The company’s Ebitda declined 9 per cent year-on-year to ₹1,115 crore, primarily due to lower short-term spreads, despite higher overall generation.

 

Despite the decline, both company executives and analysts remain confident in the segment’s future growth.

 

“We remain confident in strong power demand in the medium term,” Mahendra said. An email query sent to JSW Energy remained unanswered until the time of going to press. As of December 2024, 34 per cent of the company’s 3,858-megawatt thermal assets were operating in the open market.

 

Shersingh Khyalia, CEO of Adani Power, noted that the lack of adequate thermal capacity additions at the national level would keep average tariffs strong. “During solar hours, rates may be lower, but outside those hours, due to insufficient thermal capacity, peak-hour shortages will persist. During such periods, power rates can reach nearly ₹10,” he said. About 20 per cent of Adani Power’s Q3 sales volume of 23.3 billion units came from merchant sales.

 

Analysts at Jefferies highlighted Adani Power’s exposure to the merchant market as a potential upside for its share price. “Thermal capacity in an overall peak deficit scenario with merchant exposure is a positive,” they observed. Jefferies expects Adani Power’s merchant capacity to be 12-13 per cent by 2029-30E (E: Estimates), contributing 19-20 per cent to Ebitda, compared to nearly 30 per cent at present.