EUR 120.00 For Business Accounts Only

MOSL: NTPC (Buy)-SCED implementation leading to savings-Data indicates annual benefit of ~INR4b for NTPC

(NTPC IN, Mkt Cap USD15.8b, CMP INR114, TP INR164, 44% Upside, Buy)

** In Jan'19, the CERC (regulator) directed POSOCO to implement an optimization scheme for the dispatch of power. The scheme - termed as Security Constrained Economic Dispatch (SCED) - planned to optimize sourcing from thermal inter-state generating stations (whose full capacity is tied up and regulated with CERC).

** Under SCED, power would be dispatched in the order of the lowest cost (variable cost) of generation (while taking into account factors such as technical minimum, ramp rates and transmission constraints). With better utilization of lower cost plants, generation costs within the system were expected to reduce.

** The results of the SCED scheme have been encouraging. Total savings of ~INR3.1b were achieved for 3MFY20. According to CERC, 50% of these savings (post compensation for part load ops) would be shared with generators. Our analysis suggests that NTPC's share stands at INR1b for 3MFY20, implying an annual INR4b benefit for the company.

SCED – Implementation now beyond initial phase
POSOCO implemented the SCED mechanism on a pilot basis from 1st Apr’19. Under SCED, a separate account (called National Pool) was created for payments to/from generators for increment/decrement in their schedule. On implementation, the scheme led to savings of INR3.1b in the cost of power purchase (~1.5% reduction in generation cost*) over Apr-Jun’19. This was driven by an increase in generation from pit head (lower variable cost) plants in the northern and eastern regions of India; on the other hand, higher variable cost generation from the southern region has decreased (see exhibit 1). CERC, in its order, has taken note of this and (1) extended its implementation up to end-FY20, and (2) set out a methodology for sharing of benefits accumulated in the pool.