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Utilities: Power - Generation
Equity Research
Turbines have landed, but where is the gas? 4 options available
Increase in gas-based capacity by 6.4GW over next 12-18months…
Reliance Power’s (RPWR) two turbines for its Samalkot project (2.4GW) landed
from US 2 months ahead of schedule, and our project-wise analysis indicates
that 6.4GW of gas-based capacity is likely to come onstream over the next 12-
18 months resulting in incremental gas demand of about 25mmsmcd.
..but gas supplies to increase by 6/24 mmscmd in FY13E/FY14E
Our GS India Energy team forecasts incremental domestic gas supply growth
of 30mmscmd over FY13E-FY14E. With incremental gas from RIL’s KG D-6
field to be directed towards honoring existing contracts, we believe about
16mmscmd would be available for new capacities. Gas supply beyond
FY14E is a function of the ramp up in KG basin and GSPC fields, in their view.
What options are available for government/power developers?
With demand exceeding supply growth, we believe the options (one or a
combination of them) available to the government/power developers are:
1. Maintain status quo: Incremental 16mmscmd available for fresh
capacities is sufficient to have PLFs of about 30%-50% for FY13E (depending
upon their commissioning schedule) and 50% for FY14E, in our view.
2. Ration available gas supplies to all projects: It results in decline of
overall utilization levels to 55%/69% for FY13E/FY14E from 71% in FY12E.
3. Adopt pooled pricing system with RLNG: Variable costs are likely to
increase 1.8X and fresh capacities can be run at peak hours with PLFs of 15%-
20%. 4. Delay commissioning till FY14E: With gas supplies to improve from
FY14E, developers could delay commissioning so that debt repayment
obligations may be postponed. However, we expect capex to rise by 16% due
to higher interest during construction and IRRs to decline by 400bp.
Reiterate CL-Sell on RPWR; downside risk to Lanco reflected
While we believe NTPC would be least impacted by gas shortfall, 18%/39% of
Lanco/RPWR capacities—which constitute 11%/7% of their valuations—are
exposed to gas shortage risks. While we have reflected the gas supplies risk in
our EPS and valuation for Lanco, we believe downside risk for RPWR is high
as: 1) There is still uncertainty on whether RPWR will get gas allocation; 2) if
RPWR were to pursue option 4, which appears most likely, its capital cost
would increase significantly; 3) there is higher EPS sensitivity to change in
PLFs. Reiterate Buy on Lanco (fine-tune FY13E-FY14E EPS) and CL-Sell on
RPWR. Diversion of gas supplies to other sectors is key risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Utilities: Power - Generation
Equity Research
Turbines have landed, but where is the gas? 4 options available
Increase in gas-based capacity by 6.4GW over next 12-18months…
Reliance Power’s (RPWR) two turbines for its Samalkot project (2.4GW) landed
from US 2 months ahead of schedule, and our project-wise analysis indicates
that 6.4GW of gas-based capacity is likely to come onstream over the next 12-
18 months resulting in incremental gas demand of about 25mmsmcd.
..but gas supplies to increase by 6/24 mmscmd in FY13E/FY14E
Our GS India Energy team forecasts incremental domestic gas supply growth
of 30mmscmd over FY13E-FY14E. With incremental gas from RIL’s KG D-6
field to be directed towards honoring existing contracts, we believe about
16mmscmd would be available for new capacities. Gas supply beyond
FY14E is a function of the ramp up in KG basin and GSPC fields, in their view.
What options are available for government/power developers?
With demand exceeding supply growth, we believe the options (one or a
combination of them) available to the government/power developers are:
1. Maintain status quo: Incremental 16mmscmd available for fresh
capacities is sufficient to have PLFs of about 30%-50% for FY13E (depending
upon their commissioning schedule) and 50% for FY14E, in our view.
2. Ration available gas supplies to all projects: It results in decline of
overall utilization levels to 55%/69% for FY13E/FY14E from 71% in FY12E.
3. Adopt pooled pricing system with RLNG: Variable costs are likely to
increase 1.8X and fresh capacities can be run at peak hours with PLFs of 15%-
20%. 4. Delay commissioning till FY14E: With gas supplies to improve from
FY14E, developers could delay commissioning so that debt repayment
obligations may be postponed. However, we expect capex to rise by 16% due
to higher interest during construction and IRRs to decline by 400bp.
Reiterate CL-Sell on RPWR; downside risk to Lanco reflected
While we believe NTPC would be least impacted by gas shortfall, 18%/39% of
Lanco/RPWR capacities—which constitute 11%/7% of their valuations—are
exposed to gas shortage risks. While we have reflected the gas supplies risk in
our EPS and valuation for Lanco, we believe downside risk for RPWR is high
as: 1) There is still uncertainty on whether RPWR will get gas allocation; 2) if
RPWR were to pursue option 4, which appears most likely, its capital cost
would increase significantly; 3) there is higher EPS sensitivity to change in
PLFs. Reiterate Buy on Lanco (fine-tune FY13E-FY14E EPS) and CL-Sell on
RPWR. Diversion of gas supplies to other sectors is key risk.
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