India’s power demand is likely to grow over 6 percent for the second straight fiscal, and shoot past the pre-pandemic levels with a long-period average of 5 percent. This trend of above-average growth could continue for two more fiscals.
According to a press release by CRISIL, the past three decadal trends show power demand tangoes economic cycles. On the average, it has grown 100 basis points slower than the gross domestic product (GDP).
The demand grew 8.2 percent last fiscal over the previous year and 6.9 percent above the pre-pandemic levels, underscoring the robustness of recovery.
This was driven by the commercial and industrial (C&I) segments, as manufacturing and services activity picked up. The first quarter of this fiscal has already seen 18.7 percent on-year growth, in line with economic recovery.
“The first quarter may have accounted for 75 percent of the expected incremental power demand for this fiscal, with consumption surging across key categories — agriculture, residential, and C&I. While rising ambient temperatures have propped residential offtake, high prices of diesel has cranked up demand for subsidised power from the farm sector. The upcoming festive season, if robust, will also trigger higher-than-expected power demand growth,” Hetal Gandhi, Director, CRISIL Research, said.
The CRISIL Research forecast is assuming a slower growth in the second and third quarters, amid expectations of lower export growth, because of rising recession concerns in two of India’s top trade partners.
According to the release, over the past decade, peak power demand — which is the highest demand in a specific period — has consistently grown faster than base power demand, or the total power requirement. Surging peak demand increases the need for rapid generation at utilities.
Short-term power purchases accounted for 13 percent of overall generation last fiscal — a 300 bps rise in just a year. Within this, the share of power exchange volume spiked 46 per cent from an average 30 per cent over the past decade.
The trend is no different this year. In terms of net bids, not only did purchases rise substantially, but also sellers were limited amid supply constraints due to high international prices of coal and natural gas, the release said.
“The continuous rise in power exchange purchase bids has cranked up prices in the merchant markets to an average Rs 7.8 per unit in the first quarter versus Rs 4.4 per unit last fiscal. With demand forecast to be high this year, too, dependency on the short-term market would sustain. That should keep merchant tariffs above Rs 5 per unit this fiscal,” Surbhi Kaushal, Associate Director, CRISIL Research, said.
CRISIL Research is India's largest independent integrated research house that provide insights, opinion and analysis on the Indian economy, industry, capital markets and companies. They also conduct training programmes to financial sector professionals on a wide array of technical issues.
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