Torrent Power's Gas-Based Generation Business Sees a Revival Amid India's Renewable Energy Transition

India’s power sector is rapidly transitioning towards renewable energy, with utilities investing heavily in solar, wind and energy storage. Amid this shift, Torrent Power is taking a different approach by simultaneously strengthening its gas-based generation business. Rather than viewing gas as a declining asset, the company believes flexible gas plants will become increasingly important in supporting renewable integration, meeting peak power demand and capturing merchant market opportunities. This strategy could redefine the role of gas in India’s clean energy transition while creating long-term value for the company. With a market cap of Rs 66,900 crore, the shares of . are trading at Rs 1,327 and are trading at a PE of 29 compared to their industry’s PE of 29. The shares have given a return of more than 178% in the last 5 years. The Indian power industry is witnessing a swift expansion in its renewable energy sources, and one of the companies driving this trend is Torrent Power. According to the company report, the total capacity of the company’s implemented renewable projects amounts to 4.6 GW and is projected to grow due to an estimated Rs 29,600 crore investment for the implementation of 1.2 GW of renewable capacity in FY27. However, far from shifting to non-fossil fuel sources, management views growth in renewables as a way to enhance the significance of gas power plants. In particular, the company stated in its earnings call that increased penetration of renewable energy in its portfolio has altered the company’s operational context and requires gas power plants to operate in a cyclical manner. Instead of competing with renewables, the company views gas power plants as supplementary facilities capable of stabilizing the power generation process in response to variations in renewable energy production. Unlike many other utilities, which are busy building up their capacity, Torrent Power is busy working on the optimization of its current gas-based plants. During the quarter, the company made certain improvements on the gas-based power stations, which resulted in a Rs 51 crore rise in the cost of operation and maintenance. While these improvements had some impact on the short-term earnings of the company, as per the statements of the management, the improvements have started showing results through better margin realization from the sale of merchant power. All other improvements are being done in a phased manner and should bring improvements in the flexibility, availability and reliability of these plants. According to the company, it would result in the optimization of O&M costs even under flexible operation needs in the long run. One of the main reasons behind the increasing strength of the gas segment for Torrent is the opportunity that comes from the merchant power market. In the quarter, Torrent managed to sell 445 million units (MUs) in the merchant power market even though there were rising LNG prices. Despite a drop of Rs 87 crore in margins from merchant power sales and LNG trading year-on-year, it was stressed that the improved gas plants are able to provide better margins. realizations. Rather than working 24/7, Torrent has started sending its gas plants to work during periods of high prices of electricity, especially through the Day-Ahead Market (DAM). According to Torrent, extending peak times of demand, especially in the summer and evenings, would result in more merchant opportunities. Although Torrent Power continues to be optimistic about its gas-based business, it is clear that rising fuel prices pose the largest threat to the company. Higher costs of liquefied natural gas, which are caused by political instability in the Middle East, have limited the gains made by the company in merchant power business and LNG trading during the period under consideration. Nevertheless, Torrent Power expects that the LNG prices will normalize over time in the range of $5-$8 per MMBtu, compared to current prices of $20 per MMBtu. At these normalized levels, Torrent Power claims that it can produce electricity using its gas-based power plants at the variable cost of Rs 4-$4.5 per unit, thus being cost-competitive with renewables combined with batteries, whose costs are estimated at Rs 5.5 per unit. However, despite the emphasis being laid on gas-based electricity generation, the company’s enthusiasm towards renewable energy is increasing. 70 MW worth of renewable power capacity was commissioned by the company in this quarter, and its total installed power generation capacity reached 6.6 GW, consisting of 2.1 GW of renewable energy capacity, 2.7 GW of gas-based capacity, and 1.8 GW of coal-based capacity. Moreover, the company has 4.6 GW of renewable projects under implementation and about Rs 29,600 crore of proposed investment. This shows that the company’s policy towards gas is not an option but a complement to renewables. The management is of the opinion that the expansion of renewable sources will increase, but gas-based flexible power plants will be necessary to meet the varying pattern of demand and ensure grid stability. The main concern raised in the earnings call was the potential decrease in the requirement for gas-fired power generation owing to the fast-paced development in battery energy storage. While management confirmed that battery installations are rising, it maintained confidence about the commercial viability of its gas plants, especially in the merchant segment. According to the company, if prices for LNG were to return to normal levels of $5–8 per MMBtu, the cost of variable gas-based generation would likely be Rs 4–4.5 per unit, while the cost of a solar-battery system would be Rs 5.5 per unit. As a result, management is convinced that the gas plants will remain commercially viable, especially during peak demand times when merchant prices are favorable. At the same time, it was made clear that gas-based generation would not be connected to long-term contracts with C&I and data centers because of the uncertainty surrounding future gas prices. Unlike traditional power producers who look to maximize the capacity utilization rate of the power plants, Torrent Power is looking to maximize the profitability of its gas assets. It was noted that the management of the company will not be working towards running gas plants round the clock, especially with the high cost of LNG in the market. Instead, they have opted to use the plants during periods when there are high power rates, especially in the day-ahead market. The modifications that have been carried out to the gas plants give them the ability to start and shut down operations frequently and thereby make it easier for Torrent Power to take advantage of such opportunities. The earnings call from Torrent Power shows that there seems to be a shift in the way the company views its gas-based assets. While the company has been aggressive in terms of investing in renewable sources of energy, at the same time, it has been making these gas-based assets flexible for them to be able to tap into merchant market opportunities and changing grid requirements. It is expected that with such investments, these assets will be able to offer higher availability and reliability, and margins will be better realized by these assets, thus helping the company make the necessary transition with increased penetration of renewables. However, the company is also disciplined in its investment decisions, where it bids for renewable projects only when it expects a certain return. With 2.7 GW of gas-based assets, a growing renewable pipeline, and investments in pumped storage and transmission, it seems that the company is looking to have a diversified portfolio of power assets in the changing energy landscape of India. Leon is a Financial Analyst at Trade Brains with experience of writing 500+ finance and stock market-related articles, supported by an MBA in Finance and Marketing. He brings a strong understanding of financial analysis, along with insights into the securities market. Experienced in analysing financials and business data, supporting research-driven decision-making, and presenting insights in a clear and structured manner