Power demand in India is on a roller coaster. After dropping one percent in the pandemic year of fiscal 2021, it bounced back 8.2 percent in fiscal 2022. That momentum sustained this fiscal, with year-to-date demand (till February 2023) at over 10 percent, a decadal high for sure. In absolute terms, power demand grew by 104 billion units (BU) in fiscal 2022. CRISIL Market Intelligence & Analytics Research estimates it will grow ~28 percent to 133 BU this fiscal.
Given the current capacity, thermal plants will have to crank out extra electricity equivalent to 45 days of generation this year. Extreme weather events, an early onset of summer and robust industrial and manufacturing activity are fuelling phenomenal demand.
For the next three months, CRISIL estimates power demand to grow at an average of 4 percent on-year, despite the high base of the previous year. Recall last year, these months were marked by never-before-seen energy shortages. Average monthly shortages (for fiscal 2022), which ran at over 406 million units (MU), grew 24 percent, 559 percent and 120 percent on-year in March, April and May 2022, respectively. This January, the shortage grew ~130 percent on-year to 752 MU. In short, with the demand graph rising skyward, another summer of power crisis looks inevitable. But is it certain? To answer this, we need to look at the other side of the equation, i.e., generation from different energy sources.
Power generation from renewable sources (hydro, solar, wind and others) was 17.4 percent of overall generation in February 2023. Considering seasonal variations, renewable energy (RE) generation from these sources is expected to see marginal growth on-year, factoring in the capacity addition of 1-2 GW of wind and 10 GW of solar over the next 12 months rolling. Thus, the onus of servicing incremental demand will most likely fall on thermal generation, which needs to grow an average of 6 percent in each of the three summer months (March-May).
Thermal Power Challenge
Thermal power comprises generation from coal (domestic and imported coal-based plants), lignite and gas plants. A comparison of the plant load factors (PLFs) from these sources in February this year versus last summer yields interesting results. Gas-based plants (~24.8 GW) are currently running at an abysmally low PLF of 10.9 percent, even lower than February 2022’s level of 12.5 percent. While March and April last year saw marginal increases sequentially, to 13.4 percent and 14.4 percent respectively, it remained insufficient to service the high demand.
Lignite plants (~6.6 GW) too are running at lower PLFs than last year, while they had deteriorated in March and April 2022. Private imported coal plants (~16.7 GW) are currently running at better PLFs than last year. Domestic coal plants are running at ~73 percent PLF, which, in the current scheme of things, is more of a necessity than a silver lining. To avoid any meaningful energy shortage and limit it to around 434 MU, which is the average of the past eight months, PLFs of all these plants need to pick up.
PLFs of gas plants need to increase significantly from current levels (10.9 percent) to 16 percent in March and 17 percent in April 2023. Similarly, PLFs of lignite plants need to touch last summer’s historical high of 72 percent. Domestic coal plants, too, will need to revisit last summer’s highs from 73 percent currently. Even if all this happens, imported coal plants will need to more than double their PLFs from extremely low current levels and accelerate till April 2023. Plants under outages need to quickly come onstream and start generation. Otherwise, high shortages will be inevitable. Also, any further increase in power demand than the anticipated 4 percent growth may lead to a further grim picture.
To be sure, the government has taken multiple steps to boost supply. Section 11 of Electricity Act, 2003 has been invoked for all imported coal plants, mandating them to start operations at full capacity from March 16. The recent purchase auction for 1,500 MW of untied imported plants and 4,000 MW of gas plants is expected to further ease the situation.
Invest In Energy Storage
That said, the only long-term sustainable solution, while we build non-fossil fuel-linked capacities to be aligned with India’s climate goals and COP27 targets, also needs to be reliable and sustainable. The relevance of hence energy storage at each level of the ecosystem along with a focus on grid infra is the answer to the rising volatile nature of demand.
Energy storage at various levels of application needs a massive thrust. At an estimated 5.5-6 percent annual power demand growth through 2030, and assuming we reach 400-450 GW of non-fossil fuel capacity, India may need to install 60-70 GW of energy storage. Transmission infrastructure will also need spends, as will a number of smaller initiatives such as smart metering. All in all, we estimate Rs 28-30 lakh crore of green investments are in the pipeline through 2030, of which ~80 percent will be in renewable energy.
Beyond this, deepening the short-term markets, flexibility to sell additional power in these markets or enter into short-term power purchase agreements over and above servicing existing ones without regulatory approvals, would help achieve a greater ability to service volatile demand with agility.
Hetal Gandhi is Director - Research & Ashish Bankar is Senior Research Analyst - Research at CRISIL Market Intelligence and Analytics. Views are personal, and do not represent the stand of this publication.
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