Power Grid Corporation of India

What does the company do?

India has made significant progress in recent years towards electrification, with hundreds of millions of people having access to electricity connections. Economic expansion, urbanisation and industrialisation are expected to increase India’s energy demands in the next two decades at three times the world average. One of the Company’s holdings forms the backbone of India’s electricity infrastructure. Established in 1989 by the government, Power Grid Corporation of India is the largest electric power transmission utility in the country. It manages the national grid network as well as several regional ones, and transmits about 50% of the electricity used domestically. The return on its core transmission business is regulated with a review every five years, allowing Power Grid to pass through costs and be relatively insulated from commodity-price volatility. Aside from providing the portfolio with access to India’s long-term renewables capacity, the company offers a relatively healthy dividend payout and attractive yield, and has been active in capital recycling through the launch of an innovative Infrastructure Investment Trust (or InvIT) in India. We invested in the company because it stands to benefit from infrastructure spending and the massive push towards renewables and associated infrastructure. Whilst India has pledged net-zero emissions by 2070, 70% of electricity generation today is coal-powered and less than 4% comes from solar, suggesting the country could see substantial investment in both renewable generating capacity and the infrastructure necessary to transmit that electricity to meet that target. Power Grid is already enabling this energy transition, with more than 60% of its annual capital expenditure focused on connecting and transmitting renewable energy through the development of “green corridors” – transmission lines dedicated to moving clean energy from its source to the grid for further distribution to load centres – that will connect urban areas to India’s renewable energy generation capacity. As of December 2021, India’s installed renewable energy capacity stood at more than 151.4 GW of power, having increased 286% over the past seven years. With a commitment to achieving 500 gigawatts (GW) of nonfossil fuel energy capacity by 2030, at least 30% of India’s electricity could be powered by solar by 2040, with the country already possessing the fifth-largest solar installed capacity in the world. Despite being a public utility, Power Grid’s execution has been impressive, and the management team comes across well. On the ESG front, Power Grid has a “BBB” rating from MSCI, and we continue to engage with the company on a number of issues. It was encouraging to see the company appoint a number of new independent directors, for example, to improve board mix. During our recent meetings with Power Grid’s chairman, he reaffirmed the commitment to asset recycling and dividend payouts. He added that the company is improving disclosure, and engaging MSCI to improve its score.