The Adani Power board to meet on Saturday to consider the plan to separate generation and transmission businesses
The
Gautam Adani
-controlled
Adani Power Ltd
is considering separating its
transmission business and spinning it off into a separate entity. The
Adani Power board will meet on Saturday to consider the plan, the firm
said in a statement to the stock exchanges on Thursday.
The plan is for the separate entity to set up transmission lines
across the country; eventually, it may sell shares to public and list on
stock exchanges, according to a person close to the development who
requested anonymity.
Executives at Adani Power, a unit of Adani Enterprises Ltd of the $8.7 billion Adani Group, did not comment for this story.
As a separate entity, the transmission unit of Adani Power will compete with state-run Power Grid Corp. of India Ltd and private firms such as JSW Energy Ltd and Torrent Power Ltd and Reliance Infrastructure Ltd, among others.
Investors cheered the move. Shares of Adani Power gained 3.39% to close at Rs.39.60
on Thursday on BSE, while the benchmark Sensex edged up 0.2% to
21,074.59 points and the BSE Power Index rose 1.06% to 1,693.32 points.
Separating
generation and transmission businesses makes sense. The transmission
business is more capital-intensive and brings lower but steady returns,
compared with the generation business, experts said. Transmission lines
can also be offered for use by customers, which offers an opportunity to
earn more revenue, they said.
“Transmission
business is attractive when it acquires scale and spreads cash flows,
along with risks, across different states. It tends to attract less
defaults as it’s a thin and important part of the value chain,” said Kameswara Rao,
executive director and leader of energy, utility and mining practice at
the consulting and audit firm PwC. “This profile is attractive to
risk-averse investors such as pension funds and insurance firms, who
have a limited choice of such assets,” Rao said.
Adani Power currently operates four transmission lines and the estimated investment in these is more than Rs.10,000
crore. These include a line between Adani Power’s 4,620 megawatts (MW)
plant at Mundra and Dehgam near Ahmedabad and an over 1,000km line
between Mundra and Mohindragarh (Haryana) and two in Maharashtra between
Aurangabad and Tiroda and Warora and Tiroda, where Adani Power’s
3,300MW plant is located.
The line between Mundra and Mohindragarh was commissioned after an investment of Rs.3,400
crore. The firm got its transmission licence in July 2013 and
subsequently filed a petition for tariff determination at the Central
Electricity Regulatory Commission (CERC) to operate the inter-state
transmission line. CERC, on 18 December, announced provisional tariff
for the lines. It will announce the final tariff next year after
studying documents submitted by the firms and respondents in the case.
An
approach paper by the Planning Commission for the 12th Plan (2012-17)
said that in order to support the large expansion in production and
consumption of electricity, the transmission and distribution network
will have to be significantly expanded and strengthened. “Some private
sector investments have been made in transmission in the Eleventh Plan,
and it is important to build a policy framework within which more
private sector investments will be forthcoming in the Twelfth Plan,” the
paper said.
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