JSW Energy Abandons Power Expansion Goal to Focus on Profits

Power producer JSW Energy Ltd. is scrapping its plans to more than double capacity amid falling tariffs and a glut of electricity in India.

JSW Energy won’t pursue plans to increase its power generation capacity to 10 gigawatts by 2020 and focus on boosting profits instead, Chief Executive Officer Prashant Jain said, adding that there is enough idle capacity in the country to meet any increase in demand over the next three to five years.

“I don’t think capacity growth is very important at a time the macro environment for the industry is challenging,” Jain said in an interview at his office in central Mumbai on July 25. “My preferences are to improve profitability and return on equity.”

About 40 percent of India’s coal-fired generation is lying unused as the country’s money-losing provincial power retailers are unable to buy enough electricity to supply to their clients. The plunging tariffs for wind and solar power are also making them reluctant to sign long-term purchase commitments and forcing generators to explore the increasingly competitive shorter-term markets.

Mumbai-based JSW Energy has long-term contracts for about 64 percent of its 4.5 gigawatts capacity. It sells its remaining power through short-term sales including on the spot market, where tariffs have fallen sharply.

The company’s profit fell 92 percent from a year earlier to 237.2 million rupees ($3.7 million) in the quarter ended March 31, as power generation declined by nearly a third. Profits are expected to further decline 36 percent on-year in the quarter ended June, according to a Bloomberg poll of eight analysts. That would make it fourth successive year-on-year fall in quarterly profit.

Stranded Deal

The company has abandoned plans to expand its existing coal-fired plants or build new ones, Jain said. It is also not hopeful of completing the acquisition of Jaiprakash Power Ventures Ltd.’s 500 megawatt thermal power plant at Bina in central India as talks with the project lenders have hit a wall.

Jaiprakash’s Bina plant had long-term contracts for 70 percent of its capacity, according to the company’s latest annual report. Its other operational thermal power plant had long-term contracts for only 37.5 percent of capacity, according to the report for the year ended March 2016.

“We have been given to understand that lenders are not comfortable because they do not want a good asset to go and a bad asset to remain on the balance sheet,” Jain said.

JSW declined 1.4 percent to 68.65 rupees as of 11:08 a.m. in Mumbai, while the benchmark S&P BSE Sensex declined about 0.5 percent. Jaiprakash Power declined 5 percent to 6.70 rupees.

Jaiprakash Power had total debt of about 211 billion rupees as on March 31, according to data compiled by Bloomberg. In February, lenders led by ICICI Bank acquired a controlling stake in the company by converting 30.6 billion rupees debt into equity after the company defaulted on repayment of loans. ICICI didn’t respond to an email seeking comment.

JSW is considering new ventures including energy storage and rooftop solar projects, Jain said.

JSW has already acquired Jaiprakash’s two hydro-power plants with a combined 1,391 megawatt capacity. It has also signed a deal to buy Jindal Steel and Power Ltd.’s 1,000-megawatt plant in central India and the transaction is expected to be completed by June next year.

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