JSW Energy makes short-term bets on India's power sector as demand rises

India’s power demand is on the rise, exposing supply deficits and allowing power producers a window for quick returns. JSW Energy plans to do just that, holding some of its storage and power capacities open for the spot markets.

JSW Energy plans to light up the first unit of its Ind-Barath asset this month and the second by the end of FY24, a total capacity of 700 megawatt (MW) of power generation.

“We are in a situation where states want power purchase agreements (PPA)s, but we do not want to.  This is a super normal window to make returns and an opportunity to pay back for the project sooner,” said Pritesh Vinay, director – finance, of JSW Energy, adding, “We are trying to be opportunistic and why leave that window to make higher returns.”

PPAs are long-term offtake agreements at a pre-decided rate, which offer revenue visibility and low risks. Sale of power in the merchant market allows for high risk and high returns, with no off-take assurance. “There is an opportunity to make a Rs 2 to Rs 2.5 per unit spread,” Vinay explained.

The play on India’s power shortage is not limited to the 700-MW power generation capacity.

Prashant Jain, joint managing director and chief executive officer for the company also informed analysts in July, the company plans to keep 40 per cent of its 500MW/1,000MWh Battery Storage System un-tied for similar reasons.

“We are purposely keeping that in the short-term market at this point of time because we see quite a big arbitrage,” he said, referring to 40 per cent of the company’s battery storage project.

Vinay expects India’s power demand to continue to grow at least by 6-7 per cent. “We think there is a two to three years of elongated period of power deficit, which makes it an attractive time for the sector, depending on how companies play it,” he said.

At the start of the last decade, in 2010, JSW Energy had the majority of its power capacity in the merchant market. The company, over years, has moved towards the PPA tie-up model. Vinay clarified, the long-term PPA strategy will continue.

“This is a blip in our policy not to be seen as a trend. Assured revenue and offtake through PPA is the way to go. We are taking the risk and being opportunistic with a very small capacity, rest remains long-term,” he said.

In terms of strategy changes owing to the rise in power demand, Vinay does not anticipate private power producers to pivot to thermal power." Private sector investment in thermal is very difficult. For that to happen, state discoms need to call for PPAs, which has not happened.  Surety of offtake is needed to get financial closures,” he said.

On the company’s green hydrogen plans, the executive added: JSW Energy will complete the 3,800 tonnes project with equity and fund it later through debt post construction completion. The project cost is expected to be below $20 million.

On the fundraising plans, Vinay said: “We are now open to external capital raise, preference would be to make a strategic sale at JSW Neo level. It must be a significant minority and not more than that. We are not capital constrained.”

JSW Neo Energy is a wholly-owned subsidiary and the company’s green energy platform.