Power Demand Slides for Three Straight Months

Reasons, Impact and Future Implications

“Given the sharp fall in the core sector, there will automatically be a reflection in the overall electricity consumption”

“Going by the current trends, demand growth is likely to remain below 3 per cent for FY2020”

“Power demand will grow, but maybe at a lower rate than historically forecast, until something changes”

Views of Rahul Tongia, Anish De and Sabyasachi Majumdar

 

There have been recent reports that power consumption fell for the third month in a row in FY2020 – 0.5% in August, 1.2% in September and 13.2% in October. This is unprecedented. Power Line spoke to leading power sector experts on the reasons and implications of this development…

Anish De, Partner, National Head – Energy and Natural Resources, KPMG

There is a deceleration in consumption, but we need to see the category-wise break-up of the data to understand the nature of the beast. Essentially, there is industrial and non-industrial end-use consumption. With regards to industrial consumption, given that there has been a sharp fall in core sector, automatically there will be a reflection in the overall electricity consumption. Since industrial consumption is collectively more than 50 per cent of the overall consumption the impact is significant. Clearly, there is an economy-wide story at play here. For the rest of end-use sectors, we need to see if there has been a trickle-down impact as well, especially in the residential and commercial sectors.

Meanwhile, we are exposed to the economic cycle – both global and domestic. There will likely be further measures taken to revive the economy going forward and that will automatically have an impact on consumption. Overall, though sentiments are weak at this time, the India story itself is not affected radically. The slowdown is unlikely to be a long-term trend, but we are definitely seeing a short-term reduction in core demand.

Sabyasachi Majumdar, Senior Vice-President and Group Head – Corporate Ratings, ICRA Limited

The all-India electricity demand growth slowed down to 1.9 per cent in the first seven months of FY2020 (7M FY2020), from 6.8 per cent growth witnessed in the corresponding period of the previous year. The demand growth turned negative since August 2019, with demand witnessing a significant decline of 13.2% in October 2019 on a year-on-year (YoY) basis. This is being attributed to lower demand from household and agriculture segments following higher than usual rains during August-October 2019 and moderation in demand from the industrial segment. Also, another reason is the high base of demand at 113 BUs in October 2018 (YoY growth of 11.5%) because of a sharp demand growth. In contrast, the demand stood only at 98 BUs in October 2019.

The major industrial states of Gujarat (-3.9 per cent) and Maharashtra (-5.8 per cent) and Tamil Nadu (-0.3 per cent) witnessed de-growth in electricity demand in 7M FY2020. These three states together constitute 30 per cent of the all India electricity demand. On the other hand, the electricity demand growth remained reasonable in the states of Uttar Pradesh, Rajasthan, Haryana, Punjab, West Bengal and Bihar, largely supported by the improved household electrification under Saubhagya scheme.

The slowdown in demand growth coupled with healthy growth in generation from hydro, nuclear and renewable sources in 7M FY2020, resulted in a decline in all India thermal PLF to 56.6 per cent from 60.2 per cent in 7M FY2019. Going by the current trends, the demand growth is likely to remain below 3 per cent for the full year of FY2020, unless it witnesses a significant recovery in the remaining period of the year. This, in turn, would keep the thermal PLF below 60 per cent.

Dr Rahul Tongia, Fellow, Brookings India

There’s an old phrase from Aristotle – one swallow does not a summer make. Yes, there is a decrease in demand, but how much is seasonal versus cyclic versus weather-related versus secular? While economic indicators show a slowdown, we have also had the festival season, and extended rains (which lower agricultural demand and even some cooling demand).

As we can track using carbontracker.in, a portal showing real-time electricity, demand has rebounded after the low post-Diwali (Sunday night/Monday early AM) – where grid-level load met dipped below 100 GW. It may have been a perfect storm of a number of factors. The only question is, how much the rebound will be, and how fast (not to mention for how long)?

Going forward, in addition to both volatility and uncertainty in demand, we have different sources of power supply competing. Coal backs down due to any “must-run” status of hydro plus renewable energy plants. Realistically, power demand will grow, but maybe at a lower rate than historically forecast, until something changes.

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