Despite indications of another early summer, India may not face power shortages this year

Story highlights

• Electricity demand touched 126 billion units (BU) in January, up 13 per cent YoY, and is expected to further climb up another 9 per cent to 230 gigawatt (GW) by April 2023
• The power ministry has invoked emergency provisions, directing all imported coal-based (ICB) power plants to run at full capacity
• India’s decisive shift to renewable energy sources helped the power sector to diversify its fuel sources
   

With the weather unusually warm for this time of the year, and the effects of the El Nino phenomenon likely to start manifesting themselves in the second half, electricity consumption is all set to breach last year’s levels.

Electricity demand touched 126 billion units (BU) in January, up 13 per cent in YoY comparison, and is expected to further climb up another 9 per cent to 230 gigawatts (GW) by April 2023, leading to fears of shortages, similar to those witnessed in April 2022 due to diminishing coal supplies at power plants.

However, a series of proactive measures rolled out by the government on coal supplies and increasing the share of renewables in India’s energy mix may help prevent a recurrence.

“Last year, the country witnessed a significant increase in power demand due to the early onset of a heatwave, coupled with increased industrial activity. The high demand, combined with supply side constraints [in coal supplies] caused by geopolitical disruptions, resulted in the shortage,” the head of business development, regulatory affairs and strategy at the country’s largest energy exchange IEX, Rohit Bajaj told Business Today. 

Recently, the Ministry of Power invoked Section 11 of the Electricity Act, 2003, directing all imported coal-based (ICB) power plants to run at full capacity. These plants will supply power on priority to holders of power purchase agreements (PPAs). Any surplus power for which there is no PPA would be sold on the power exchanges such as IEX.

Meanwhile, NTPC Vidyut Vyapar Nigam – the power trading subsidiary of NTPC, the country’s leading power producer – has issued a purchase order for 1500 MW power from ICB plants, which will be routed through power exchanges.

Adequate coal, rising renewables

The government has also been undertaking several initiatives to ensure adequate coal supplies. The Mines and Minerals (Development and Regulation) Act, 1957, has been amended to allow captive mines to sell up to 50 per cent of their annual production after meeting the requirement of the end-use plants, and coal blocks were auctioned to public and private sector entities for commercial mining.

The government has also allowed 100 per cent FDI in commercial mining and permitted single window clearance to increase domestic coal production. Furthermore, coal allocation for the power sector has been increased and its transportation has been prioritised by the Indian Railways.

“As a result of these initiatives, the coal scenario is much better compared to the previous year. Coal production increased more than 15 per cent YoY in the first ten months of this fiscal. The country has a coal stock of about 13 days as of now,” informed Bajaj. 

“The overall power generation is expected to increase across all sources. Additionally, the induction of the high price day ahead market (HP-DAM) in the power exchanges would boost the plants using expensive fuel [imported coal] to generate more units to meet the rising demand,” averred analyst at Geojit Financial Services, Sheen Zacharia George.

Under HP-DAM, participants purchase and sell electricity at financially binding day-ahead or 24-hour prices in a closed auction for the following day.

“Despite the increased demand, India’s power plants are currently running at low plant load factors (PLFs). PLFs at gas-based plants are less than 20 per cent, while despite a significant increase it is less than 65 per cent at coal-based plants,” explained Bajaj.

Sector analysts, therefore, see sufficient legroom available to meet the high demand through efficient capacity utilisation. Besides, the country’s decisive shift to renewable energy sources has also been helping the sector to diversify its fuel sources.

“We have seen the share of renewable energy in the energy mix go up, due to the country’s constant efforts to reduce carbon emissions from conventional power plants. This is expected to increase as numerous players enter the market to capitalise on the same,” said George.

The declining cost of renewable energy technologies is expected to further help in this transition.