India’s Power Demand Set to Reach Decadal High Amidst Surge in Short-Term Market Prices

India’s power demand is expected to reach a decadal high rate of growth of 9.5-10%, nearly double the 20-year average of 5.2%. The growth in demand is attributed to extreme weather events, robust industrial and manufacturing activities, and the possibility of multiple heat waves this summer. According to Hetal Gandhi, Director – Research, CRISIL Market Intelligence & Analytics, a hotter-than-usual summer is expected to keep power demand growing at 5.5-6% in the next fiscal year, with the first half seeing higher growth due to summer.

Renewable sources are expected to account for 11% of power this fiscal year, with solar and wind accounting for 13% next fiscal year. Hydro power accounts for another 11%, but its share dropped to 8% last summer due to a drop in water levels. However, thermal capacities continue to shoulder the burden of meeting any sudden surge in power demand, especially in the summer months when water levels in hydro projects drop.

Imported coal plants, which account for 8% of the total thermal capacity, were operating at a low plant load factor of 21% as of February, compared to the aggregate thermal PLF of 63%. Short-term power prices have surged due to a surge in demand, and to control them, the Ministry of Power has floated a tender to buy 1.5 GW power from plants using imported coal with untied capacity for one month. Surbhi Kaushal, Associate Director – Research, CRISIL Market Intelligence & Analytics, notes that the government aims to pump this entire 1.5 GW to the short-term market at no cost to tamp prices.

However, short-term markets have reacted with a surge in demand leading to purchase bids surpassing the sell bids by 6 GW on average in the last 15 days. This has resulted in a 42% YoY increase in prices in February and a 151% increase on the first day of March. The market clearing price in the day-ahead market (DAM) at the Indian Energy Exchange breached Rs 6.5/kWh in February, which is the highest level seen in the past eight months. CRISIL expects DAM prices to average 6-6.5 Rs/kWh this fiscal year, compared to an average of Rs 3.1//kWh in fiscal 2015 to 2019.

CRISIL is a leading provider of ratings, data, research, analytics, and solutions for the Indian financial market. The company’s Market Intelligence & Analytics division provides insights and data-driven research on various sectors, including power.