Power demand in India is expected to grow at a faster rate, with a 7% CAGR over the next decade, driven by a robust economic outlook, urbanization, and new demand drivers such as electric vehicles (EVs), data centres, and the electrification of energy needs.
India's power sector presents a colossal multi-decade investment opportunity, with an estimated INR40 trillion in investments over the next decade. This potential is fuelled by three key drivers: rising power demand, a necessary shift towards renewable energy, and the modernization of aging infrastructure.
Power demand in India is expected to grow at a faster rate, with a 7% CAGR over the next decade, driven by a robust economic outlook, urbanization, and new demand drivers such as electric vehicles (EVs), data centres, and the electrification of energy needs.
Currently, India's power consumption patterns mirror China’s growth trajectory from the early 2000s, where power demand compounded at nearly 8% annually. Similarly, India is now at an inflection point, with electricity consumption expected to rise substantially as the economy grows at 6.5-7% per year.
A significant portion of this investment will be directed toward the transition to cleaner energy sources. India is committed to reaching 500GW of renewable energy capacity by 2030, creating vast opportunities for renewable energy generation, particularly in solar and wind.
The power sector is undergoing a shift, with renewable energy generation and transmission being prioritized over traditional thermal energy, due to its shorter gestation period, better earnings visibility, and reduced exposure to coal price volatility.
Private sector participation in thermal projects remains tepid, making renewable energy even more attractive.
The electrification of transport, notably the growth of EVs and the expansion of the metro rail network, will further accelerate power demand in the coming years.
By 2035, EVs and data centers alone could account for a third of the growth in power demand, underscoring the importance of investing in transmission and infrastructure upgrades. Smart metering and the modernization of power infrastructure are essential to accommodate this rising demand and reduce inefficiencies.
In addition to renewable energy, the transmission segment holds a promising outlook, with Power Grid alone expecting INR2 trillion in capital expenditure. Energy exchanges are also set to benefit from the expansion of generation and transmission infrastructure, along with new product launches.
With robust government support and proactive policies, such as the Late Payment Surcharge (LPS) scheme to reduce state utility debts and efforts to cut AT&C losses, the power sector’s financial health has improved significantly.
In conclusion, India’s power sector is at the intersection of economic growth, energy transformation, and technological advancements.
The transition to renewable energy, coupled with increasing power demand from emerging sectors like EVs, data centers, and metro expansion, creates a compelling case for long-term investment.
With solid regulatory support and a strong growth trajectory, the Indian power sector is poised for substantial returns over the next decade, making it a key investment opportunity in the years to come.
Tata Power: Buy| Target Rs 530
Tata Power is undergoing a multi-year business transformation, with 45% of capex over FY2327 to be allocated to RE projects. This is instrumental in increasing the share of core earnings from 40% to 90% over FY23-27and strong 14% PAT CAGR in FY24-27.
Power Grid: Buy| Target Rs 425
Power Grid with a 50-60% market share, remains the leading player to tap ~₹2tn transmission opportunity in the Indian power sector. The earnings outlook remains strong given its robust work pipeline, with an OB/Rev. ratio of 2.5x as of 1QFY25 end. Further, maiden data center & cross-border projects provide growth optionality.