Power demands surge amid prediction of heat waves; prices spike

Demands for power have jumped by around 10 per cent in the first 11 months of the current fiscal on a year-on-year basis and may surge further in the coming months amid early warnings of heat waves in northern and central parts of India leading to spike in short-term prices, industry data shows.

A surge in demand has led to purchase bids surpassing the sell bids in the short-term market by 6 GW on average in the last 15 days. The result is a 42 per cent on-year increase in prices in February and a 151 per cent increase on the first day of March, according to data compiled by global analytics firm CRISIL.

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.

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CRISIL expects DAM prices to average 6-6.5 Rs/kWh this fiscal, compared to average of Rs 3.1//kWh in fiscal 2015 to 2019.

The average price for 2023-24 in the DAM market is expected to remain under Rs 7-8/kWh, with almost non-operational gas-based power generation of 24 GW to become competitive with falling gas prices.

In the financial year ending March 2023, demand for power in India is expected to grow by 9.5-10 per cent. This is despite a high base. Power demand had jumped by 8.2 per cent in 2021-22.

The projected growth in power demand in the current fiscal is the highest in a decade and almost double the 20-year average of 5.2 per cent.

“A hotter-than-usual summer, with a high probability of multiple heat waves, is expected to keep power demand growing even next fiscal at 5.5-6 per cent, despite two straight years of robust growth,” said Hetal Gandhi, Director-Research, CRISIL Market Intelligence & Analytics.

Gandhi said the growth in power demands in the first half of 2023-24 would be higher due to summer.

Last summer, a huge scarcity of power supply was witnessed in several parts of the country due to shortage of coal supply.

India is heavily dependent on coal for power generation. Renewable (non-hydro) sources are estimated to account for around 11 per cent of power this fiscal and their share is expected to rise a notch next fiscal, with solar and wind accounting for 13 per cent.

Also Read: India's electricity consumption grows over 9 per cent to 117.84 bn units in February

Hydro power accounts for around 11 per cent. However, in summer when water levels in hydro projects drop, the power output dips. The share of hydro had dropped to 8 per cent last summer compared with 11 per cent on average for the full year.

Thermal capacities continue to shoulder the burden of meeting any sudden surge in power demand.

In view of the projected surge in demands, the Ministry of Power recently floated a tender to buy 1.5 GW power from plants using imported coal with untied capacity for one month (April 10 - May 10).

The government aims to pump this entire 1.5 GW to the short-term market at no cost to control prices.

Imported coal plants would bid on fixed tariff with an upside of price on variable charge indexed at Rs 5.34/kWh. This implies a 20 per cent mark-up on variable charge of Rs 4.4 at an estimated Rs 7,500/MT imported coal prices for Q1 of fiscal 2024, said Surbhi Kaushal, Associate Director – Research, CRISIL Market Intelligence & Analytics.

In addition to this, the government has invoked Section 11 of the Electricity Act, mandating all plants using imported coal to operate at full capacity.