Dilemma of Power Demand

Reduction in power demand during Covid-19 lockdown explains that power demand depends largely on the level of socioeconomic activities. Meeting the full demand would be a function of available generation, access to load centre and also health of Discoms. India has a total generating capacity of about 368GW as on January 2020, whereas the maximum peak demand reached so far, was around 183GW. Renewable Energy capacity also has doubled over the last five years to become almost 23 % of the installed capacity of utilities, though electricity generated from Renewable Energy (RE) is still only 9 % due to low capacity utilization factor (CUF) of about 14-15%. The current extent of flexibilization in conventional thermal plants cannot efficiently make up for variability induced by must run RE plants. As a result, Discoms has done more PPA than required and now end up paying excess fixed charges. The problem has further been compounded by the current downside in consumption and peak load due to lockdown. Comparison of peaks of certain dates shows that peak load was growing compared to previous year demand, but started to reduce from the day of Junta curfew. 

      Graph based on data sourced from https://posoco.in/

System of aggregate demand projection has not been robust in the country. Aggregate power demand is directly connected with growth rate of Gross Domestic Product (GDP). GDP growth rate of 8-10% was used in demand projection of 18th EPS (2012-17) and consequently actual demand remained much below the projected one. Income elasticity of electricity demand is found higher in the relatively less-developed eastern region leading to higher growth in electricity demand with increasing income. Relatively slower growth in electricity demand has been observed in developed states i.e. industrialized states, though in absolute value they are quite high. The impact of Covid-19 on power demand would be better understood once the lockdown is lifted. If the industrial activities in developed states suffers from reverse migration of workforce, and the public consumption does not pick up in developing states due to deprivation of domestic remittance, then it may affect demand adversely. It would, therefore, be desirable to hasten the industrial production in developed states and ensuring adequate income to strengthen consumption in developing states. Demand estimates of EPS 19 (2017-22) also face great challenges and may go haywire in the wake of global slowdown and Covid-19. Energy efficiency schemes such as solarization of agri-pumps, Perform, Achieve and Trade for designated industries, LED bulb campaign, Star and Labelling Programme are likely to reduce electricity demand on the grid. According to Energy Outlook 2020 of IEA, India avoided an additional 15% of annual energy demand and 300 million tonnes of CO2 emissions due energy efficiency efforts during 2000-2018. These are consumer and climate friendly activities and must continue. Demand for electricity is also influenced by season, rainfall, population growth, climatic variations, technological changes, consumer preferences, availability of alternative energy sources etc. Schemes such as Make in India, Dedicated Freight Corridor, FAME are likely to increase electricity consumption and should be implemented faster. On a conservative estimate, CEA has projected peak demand to be 201 GW and 293 GW in 2022 and 2030 respectively. So, a mid-course correction in the power demand would be necessary in the aftermath of Covid-19 crisis.

 Generation planning in the country has also not conformed to international best practices. Review and enforcement of resource planning have been missing at the tariff regulation stage too. Generation capacity in the country stands much above the expected peak demand. IEA recommends Reserve Margin of 15%, but Reserve Margin in India has been as high as 50.94% in 2011-12 and 71.78% in March, 2017. It now stands at 100%. RE installation target of 175 GW is expected to be met, nevertheless it may not generate more than 225-250 BU by 2021-22 due to low CUF, but new demand for long term procurement of conventional power is unlikely to rise in near future, unless old and inefficient plants are retired.

Problem of plenty was unknown to power sector in India. Post 2014 all pending projects were expedited and India could add more than 100 GW capacity in three years. With surplus installed capacity India needs to accelerate electric cooking, electric mobility and electrification of railways. They may add up to consumption of additional 200 BU of electricity. India is now committed to 450GW of renewables. We must therefore search new opportunities of cost-effective storage technology, diversified usages and overseas trade of electricity to utilize full capacity. Tax concession for establishing MSME in identified pockets can enhance demand as well as remove regional inequality and create local employment. Covid-19 crisis should be leveraged as opportunity for introducing tariff reforms. Rationalization of industrial and commercial tariff; reducing cross subsidy regime in coal, railways and power sector; introduction of demand linked tariff slabs; preferential tariff to energy intensive industries; introduction of time and type of use tariff; and incentivizing EV through lower tariff can boost power demand and resolve the dilemma.

About the Author

AK Verma
Author worked as Joint Secretary, Ministry of Power.

Dr. Verma is an Indian Forest Service (IFS) officer of 1986 Gujarat Batch. He has over 29 years of administrative and management experience. He was associated with the Government of Gujarat in various capacities including Conservator of Forests, Social forestry circle, Ahmedabad, Commissioner of Tribal Development and the Managing Director, Uttar Gujarat Vij Company Limited. Before joining Ministry of Power, Government of India he was posted as Member Secretary of Gujarat Ecology Commission, Gandhinagar and Project Director of the World Bank Funded Integral Coastal Zone Management. He had been Government Nominee Director on the Boards of various companies like REC, PFC, NHPC, SJVNL, & PTC.