NEW DELHI: India’s power transmission capex requirement will be over $500 billion by FY50, 30% of the overall energy transition capital outlay, Goldman Sachs estimates.
“Power transmission is key to India’s energy transition and global new energy cost leadership ambitions. India’s large, highly integrated grid enables the utilisation of least-cost renewable generation sites, and by keeping the central grid access free, the government is assisting the viability of renewable projects via indirect financial support worth $270 billion,” Goldman Sachs said in a report.
Creating surplus transmission infrastructure and keeping it free for renewables makes economic sense as the gains from transition should more than offset the incremental network cost, it said.
Goldman said Power Grid Corporation of India (PGCIL) stands to be the largest beneficiary of its over $500 billion grid total addressable market (TAM) estimate between FY24-50 — one-third of India’s overall energy transition TAM, based on its estimates.
“It’s large balance sheet, low cost of debt and strong annual free cash generation position it favourably to capture the bulk of our TAM estimate,” it said. PGCIL also benefits from being eligible for direct nomination to execute large, complicated, multi-region projects — which, it said, can see material ramp up as India focuses on cross-border grid interconnections.
“Our analysis of PGCIL’s cash flows implies PGCIL alone will be able to fund 30% of India’s planned grid capex by FY32, while maintaining its current dividend payout,” the report said.
PGCIL’s cost of debt advantage is similar to that of NTPC in renewables, which has allowed PGCIL to capture over 40% of the auction market share. “We also expect PGCIL to benefit from an easing of competitive intensity in new project auctions as most private developers run out of balance sheet capacity due to the sheer quantum of capex we expect grid expansion will require,” it said.
Goldman views Hitachi Energy India as a pure upstream manufacturing play on India’s energy transition. “Hitachi is a global leader in high voltage equipment manufacturing and has achieved meaningful levels of indigenisation in India. In fact, Hitachi Energy India manufactures 80% of Hitachi Energy’s global equipment portfolio with capability to manufacture 75-80% of HVDC systems (by value) domestically,” it said.
Goldman expects Hitachi to be a significant beneficiary of its $105 billion grid capex estimate for FY24-32, where it could have a TAM size of as much as $50 billion. Incrementally, it can also participate in various non-grid opportunities- where it estimates the relevant TAM to be over $20billion.
It expects the revamped distribution system scheme to drive $37billion capex in distribution system expansion and strengthening over the next five years. So far, projects worth $14billion have been sanctioned under the scheme, of which it estimates Schneider Electric Infra to have a play in over 50% of the total capex outlay.