Goldman Sachs expects rising peak deficits to drive re-rating in power companies

India is the third largest consumer of electricity and renewable energy producer. India has set a target of 500GW of non-fossil fuel based energy by 2030.

As of May 2023, the total installed capacity of renewable energy in India was 179 GW, which is nearly 43 percent of the country's total capacity. According to Goldman Sachs, there are two key themes playing out in India's power sector. Firstly, economics-led renewable energy transition being driven by viability of Round-the-clock Renewables, which has the potential to unlock a superior business model for traditional utilities, offering higher returns and access to a better customer base. Secondly, the onset of a peak power deficit cycle caused by a secular rise in peak demand is being met by inadequate 'firm' capacity addition.

Transition led business model upgrade and rising peak deficits is expected to drive re-rating in the power sector. Goldman Sachs initiates coverage on NTPC at Buy with target price of Rs 265, given its exposure to both themes. It expects NTPC to emerge as a winner in this transition, as its 'structural advantage' of low cost debt will provide a strong moat. At the same time, rising peak shortages will re-rate its thermal business, like in the previous cycle.