Acuité estimates that the Electricity sector contributes nearly 2% to GDP and has achieved optimal sectoral size. The12th Plan envisages India's power production to be roughly 850 (million tons of oil equivalents) MTOE by 2021-22 from the current 600 MTOE. This move is imperative as electricity outage causes 3.0% of revenue loss to Indian manufacturing firms, whereas China's revenue loss is only 0.2%. Hence, improvement in power supply will make Indian manufacturing firms more competitive.

The massive Government thrust has attracted interest from foreign investors, with an expected investment of Rs.6 lakh crore in the next five years. With robust growth in per capita GDP, demand for energy is expected to increase. The Central Government's UDAY scheme will have a positive impact on the overall health of the sector. Additionally, the commissioning of 4GW UMPPs has been instrumental in massive capacity augmentations taking place (with forward backward linkages). Efficiencies have also improved at the input cost level by upgrading transmission cables, meters and transformers. We are bullish on the sector. The electricity production has recorded 5.6% growth in first four months of FY18. Acuité expects the overall growth rate of this sector to remain 5.6% for FY18.

Annual growth in electricity price in WPI index has dropped to (-) 1.0% in FY17 from a 3.1% in FY14. The fall in electricity price is result of improvement in efficiency in electricity production both in conventional and non-conventional energy. With a tremendous decline in solar unit costs, especially post the competitive bidding for the 750 MW RewaUltra Mega Solar Project, solar cost has dropped to below Rs. 3 per unit.

Change in electricity production and price index:

Source: : MOSPI, Acuité Knowledge Centre

Note: * is Acuité expectation,

Capacity expansion in solar power:

Source: : Ministry of Power, Acuité Knowledge Centre

Lowers tariff rate achieved in a year:

Source: Ministry of Power, Acuité Knowledge Centre