Valuation upgrades likely ahead for transmission major Power Grid

Power Minister Manohar Lal Khattar recently stated that the National Electricity Plan (NEP) 2023-32 for central and state transmission systems estimates a total transmission capital expenditure (capex) requirement of $110 billion (Rs 9.15 trillion) towards grid expansion. This is to support rising renewable penetration, green hydrogen and pumped storage capacity addition along with surging peak demand.

Transmission major Power Grid (PGCIL) stands to capture the bulk of the transmission capex opportunity. Full details of the plan are not available yet, but Power Grid is strategically positioned to capitalise on the opportunity.  The Ministry of Power has finalised the plan, with an estimated cost of Rs 9.2 trillion. 
 

The plan aims to address rising demand for electricity and facilitate the integration of renewable energy (RE) and green hydrogen into the grid.  The NEP aims to meet a peak demand of 458 giga Watt (Gw) by 2032 and expand the transmission network to 0.648m circuit km (ckm) by 2032 from 0.485m ckm in 2024. 
 

The transformation capacity is likely to rise from 1,251 gross value added (GVA) to 2,342 GVA over the period.  Nine high-voltage direct current (HVDC) lines with a total capacity of 33.25 Gw will be added to the existing 33.5 Gw.
 

The inter-regional transfer capacity is to rise to 168 Gw from 119 Gw, focusing on 220kV networks and above. 
 

Approval has been granted for 50 Gw of Inter-State Transmission System (ISTS) capacity.
 

A network of 335 Gw is planned to evacuate 280 Gw of variable renewable energy (VRE) to the Inter State Transmission System (ISTS) by 2030, with some progress already achieved. The revised guidelines for electric vehicle (EV) charging infrastructure aim to establish a connected and interoperable network. There are plans to increase the number of charging stations to about 100,000 by 2030. 

 

Two new building codes — ECSBC and ENS — will push energy conservation in commercial and residential buildings and target reduction of electricity consumption by 18 per cent.
 

An addition of 39 Gw of pumped storage capacity by 2030 will enhance grid stability.
 

A new central financial assistance (CFA) scheme supports the development of 15 Gw of hydroelectric capacity in the Northeast, at a cost of Rs 4,100 crore.
 

Additional thermal capacity will meet peak demand and base load requirements, which currently stand at 217 Gw. There is 28.4 Gw under construction, and 12.8 Gw of new coal-based thermal capacity has been awarded in the last 100 days. During FY24-32, system-wide transformation capacity will grow by 1,091 Gw (over 8 per cent compound annual growth rate or CAGR). And, the transmission network will expand at 4 per cent CAGR (from 485,000 ckm to 648,000 ckm). Over the last 100 days, 51 Gw worth of transmission schemes have been approved for awarding, with project costs of Rs 60,700 crore. Transmission schemes for evacuating 150 Gw + renewable energy (out of the 2030 target of 280 Gw) are yet to be awarded.  Approved transmission schemes also include those planned for transferring power for green hydrogen (GH2), green ammonia (GNH3) production, evacuation of offshore wind generation and pump hydro projects (PSPs). 
 

PGCIL will be the largest beneficiary, given its large balance sheet, low cost of debt and strong annual free cash generation.

It also benefits from being elig­ible for direct nomination to execute projects.

The rising RE penetration, strong demand growth and broader electrification of energy mix are all positives for PGCIL. The firm has twice increased FY25E capex target, and guided for FY26 and FY27 capex to be above Rs 25,000 crore and Rs 30,000 crore, respectively. 
 

Work-in-hand has more than doubled over the last 12 months with PGCIL winning 70 per cent market share in auctions. It was allocated projects worth Rs 13,000 crore for 1 Gw offshore wind power evacuation. 
 

PGCIL is likely to see valuation upgrades and higher target prices.
 

Key risks would include delays in transmission project awards, rise in competitive intensity, or shortages in key equipment.