Power Generation & Distribution Sector Stocks

India ranks 4th in the list of power consumers and producers in Asia-Pacific. While India ranks 4th in wind power, it ranks 5th in solar power and renewable power. With an installed capacity of 382.15 GW (Gigawatt) (as of April 2021), the Indian power sector is a major contributor to the country’s growth. Also, by allotting US$90 billion between 2010 and 2019, India has grabbed the sixth position in the list of countries making significant investments in clean energy.

In the Union Budget 2021-22, the government allocated US$42 billion or INR 305.984 crore for power distribution schemes. Moreover, the fact that 100% FDI (Foreign Direct Investment) is allowed in the power sector further increases the attractiveness of power sector stocks. 

The power sector in India is primarily divided into four segments:

1. Thermal Power - Thermal power refers to power generated by burning fossil fuels, such as diesel, coal, lignite, and gas. The total installed capacity of thermal power is 234.44GW. With an installed capacity of 202.67GW, coal is the largest contributor, closely followed by gas and lignite (31.54GW), and diesel (0.51GW). Tata Power and Adani Power are some of the top stocks in the thermal power sector. 

2. Renewable Energy - Renewable energy includes wind and solar power. The total installed capacity of renewable power is 103.05GW. The renewable segment has a weightage of 24.5% in India’s total power capacity. While Wind energy contributes 37.75GW, solar power generates 34.91GW electricity. Tata Power Solar and Suzlon Energy are some of the top stocks in the renewable power sector.   

3. Hydro Power - With a 12.2% contribution to India’s total power, hydropower is a major segment in the power sector. The total installed capacity of hydropower is 46.51GW. NHPC and Tata Power are some of the best shares in the hydropower sector in India. 

4. Nuclear Power - Although nuclear power contributes a tiny 1.8% or 6.78GW to the country’s total power, it is fast catching pace. The total installed capacity of nuclear power is 6.78GW. NTPC and HCC are some of the top shares in the nuclear power sector in India. 

The future of power sector stocks in India looks evident. A quick scan of the share prices of power sector companies shows that foreign and domestic institutional investors have gradually increased their exposure to the sector.

With the Indian economy growing at a breakneck speed, the demand for power and energy is bound to shoot up. It is estimated that, by 2022, solar energy will contribute about 114GW, while wind power will add 67GW, followed by biomass and hydropower (15GW). India has also increased the target for renewable energy to 227GW. This decision is likely to benefit renewable power sector stocks, such as Tata Power, Adani Power, and the like.   

With the Indian government increasing its investments in the power sector and power consumption figures expected to touch 1894.7Twh by 2022, we can only expect the good times have just begun for power sector share prices. 

The power sector in India has been subject to many technological changes in recent times. For instance, while the focus has traditionally been on thermal power, it is gradually shifting to renewable or clean energy sources. The Government of the United Kingdom has recently announced that they will invest US$1.2 billion in renewable energy and green projects to help India achieve its target of producing 450GW of renewable energy by 2030.

Moreover, Central Electricity Authority (CEA) data shows that, by 2029-30, the share of thermal power will reduce from 78% to 52%, while renewable power’s share will increase from 18% to 44%. Hence, investing in renewable energy-focused power sector shares will be a sensible decision in 2022. 

The power sector presents massive opportunities for investment. Since most power sector stocks are available at attractive valuations, you can invest in the best companies to reap rich dividends. Click here to open a free Demat and trading account to trade efficiently.