Thermal Power Behemoth To Green Energy Champion? NTPC Faces Uphill Task

Last fortnight when NTPC Green Energy, a wholly-owned subsidiary of India’s largest power generation firm NTPC Ltd, listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), it got off to an optimistic start with the shares debuting at a small premium. In subsequent days, the stock moved up further with the announcement of commercial operation of the first phase of its Shajapur Solar Project in Madhya Pradesh.

Incorporated in April 2022, NTPC Green Energy is an umbrella organisation of the parent company’s green energy initiatives. In just a little over two years, by September 2024, it has created an operational capacity of 3,171 MW, including 3,071 MW from solar power and 100 MW from wind energy across six states. But for the historically fossil fuel based NTPC group, which today has an installed power capacity of 76,530 MW, the renewable energy capacity so far is negligible. Keeping in mind its stated goal of achieving 50% renewable energy capacity through its ‘Brighter Plan’ vision by 2032, it has a long way to go.

Set up in 1975 by the Ministry of Power, the National Thermal Power Corporation (NTPC), as it was then called, had a mission to bring electricity throughout the country especially in the rural areas because the private sector’s role in power generation was quite limited then.

Rahul Mishra, professor of Strategy at IILM Institute of Higher Education, who has first-hand knowledge of the Maharatna Public Sector Unit (PSU) through his decade-long consulting for the company said that there are a host of challenges the company will face in its transformation journey. However, he adds “the good news is that India will continue to depend on thermal energy up to 50 per cent for more than a decade and NTPC will hold its relevance in the medium term.”

The imperative of the NTPC group to transform itself into a green energy major could have major implications on the parent company. There are many challenges but we will focus on three important ones.

Reorienting Power Generation

First, with the tightening of regulations world over including India towards climate change goals, the Environmental, Social and Governance (ESG) standards that need to be achieved require NTPC to reorient its very way of power generation. Take just one example. The new norms will require greater scrutiny of recycling of waste like fly ash. Indian coal is of low grade with ash content between 30-60% while imported coal has a lower ash content between 2-20%.

With the Ministry of Environment and Forests notifying that there should be 100 per cent utilisation of fly ash, coal and lignite-based power plants will have to invest heavily in superior technologies and processes to make this happen. This is likely to increase the cost of operations in the short-term by putting a spanner in the wheel to reduce the price of thermal power. In course of time, if the renewable energy price, particularly that of solar power comes down, it could affect the top line and bottom line of the company.

Reworking Its Business Model

Second, the planned decrease in the share of thermal power production will call for not only the growth of renewables but also a change in the company’s business model itself by diversifying to related areas like ancillary services, storage, consulting in the clean energy space and power trading.

For a company that has for five decades concentrated on power generation and distribution dealing mainly with the State Electricity Boards (SEBs), mastering the new growth areas will call for new competencies and innovations. The new competencies arise from its push into green energy and services like those mentioned above. Innovations are primarily in the area of technology development and adoption. For example, it has developed a technology to produce hydrogen from water sources like sea water and waste water.

Cultural Shift

Third, there is the people factor. As of March 2024, NTPC had about 20,000 employees. Even as the company has been adjudged as a “Great Place to Work”, Mishra said that in this process of reinventing the company, younger and good quality managers have been difficult to hire. He added that the success of NTPC’s corporate transformation will be crucially linked to the effectiveness of the cultural and people transition that it will be able to bring about.

While some efforts at retraining and reskilling have been conducted, much more needs to be done. Finally, there could be the aspect of two distinctly different cultures in the group. One, a legacy firm and the other a green energy start-up. This is quite like how the State Bank of India worked and changed with the development and growth of its very successful app, YONO.

As of June 2024, India was the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 446.18 GW. As of 2024 beginning, India’s installed renewable energy capacity (including hydro) stood at 182.04 GW, representing 42.34 per cent of the overall installed power capacity. India now allows 100 % foreign direct equity in the power sector including renewables. The macro fundamentals seem to be encouraging. For a company that today generates 25% of the total power capacity of the country, NTPC has its work cut out for the future.