According to reports, having a monopolistic presence in an industry can be a double-edged sword. On the one hand such companies are viewed with favour by analysts and sector experts but on the other they face greater scrutiny when their sectors are hit by a downturn. However, India’s largest transmission company Power Grid Corporation has such a dominant position that tough times don’t have much of an effect, thanks to its low-risk and robust business model.
“Companies in transmission do well mostly in scarcity situation given the dire need of power across India,” said RN Nayak, chairman and managing director of Power Grid. The company has the advantage of deep penetration and presence across states.
Power Grid’s stellar financial performance in the past few years reflects the growing importance of transmission companies in India. It also reflects how these companies are the fulcrum of India’s economic growth.
Revenue grew at a compounded annual growth rate ( CAGR) of 24% in the last three years, while profit grew 27%. The company works on a fixed return on equity model. Return on equity of 15.5% is guaranteed at a debt-to-equity ratio of 70:30, even in a difficult business environment. It currently owns and operates a transmission network of about 1,00,200 circuit km of inter-state transmission lines, 167 extra high voltage (EHV) and high voltage DC (HVDC) substations with a transformer capacity of about 1,64,763 MVA and wheels about 50% of total power generated in the country.
To enhance access, the company has earmarked considerable capital expenditure, Rs 1,10,000 crore in the 12th Five-Year Plan (2012-17), for which it plans to raise debt of Rs 70,000 crore. It has already tied up close to 54% of this.
“In the coming years, we will be able to raise debt from the market as we have a clean record and high creditworthiness,” Nayak said. “We have never defaulted till date and every payment is on schedule.”
The company gets loans at the lowest interest rate, better even than some banks, he said. “So, our credibility is high,” Nayak added.
The company is also prepared to connect renewable energy to the grid. The government has adopted various initiatives in this segment, with about 18.5 GW of grid connected capacity addition envisaged in the 12th Plan.
The integration of renewable energy resources with the grid is a top priority worldwide for energy security as well as carbon emission reduction.
“In the case of renewable energy, integration is needed because of unavailability of power at all times,” Nayak said. “For instance, solar is not available in the night and wind is not there every time, so if you have large interconnection, balancing is done.”
When the strong fundamentals of Power Grid are juxtaposed with the realities of the power sector, it’s clear company has an important role to play in creating networks for electricity to reach every corner of India. In the last fiscal India had a 9% peak power deficit.