The Ministry of Power (MoP) is gearing up in a big way to meet the power demand in the upcoming summer season, with the peak demand expected to hit an all-time high of 229 GW in April 2023. Maintaining uninterrupted power supply and meeting the growing demand is a top priority for the government and policymakers. This, of course, is no mean task. With the harsh summer and growing economic activity, power demand is likely to reach record levels.
The power ministry has devised a multi-pronged strategy to meet the anticipated demand in the coming months. Notably, it plans to utilise the country’s gas-based generation capacity, which has been operating at sub-optimal levels for a long time, to enhance the availability of power. It also aims to utilise the existing coal-based installed capacity to the fullest by ensuring adequate coal supplies.
Growing power demand
During 2022-23, the total energy requirement and supply in the country increased by 9.8 per cent and 9.7 per cent respectively over the previous year. The peak demand and peak demand met increased by 6.3 per cent and 3.3 per cent respectively as compared to 2021- 22.
Power demand in the country recovered swiftly from the slump witnessed during the pandemic, and continued on an upward trajectory. The sustained recovery in economic activity following the Covid-19 pandemic and the severe summer characterised by heat waves, erratic weather and dry spells were some of the key reasons for the increase in power demand. Notably, India has emerged as one of the fastest growing countries in terms of power demand. While power demand in the country reached a decadal high of 9-10 per cent in 2022, the Asia-Pacific region clocked a growth of around 3.3 per cent during the year.
The growth in energy requirement and peak power demand is expected to continue. As per the Central Electricity Authority (CEA), peak electricity demand is expected to touch an all-time high of 229 GW in April 2023. The demand is then expected to taper off as monsoon rains kick in. Energy demand is expected to reach 142,097 MUs in April 2023, the highest for the year, before easing to 141,464 MUs in May 2023, and falling to 117,049 MUs by November 2023. With India’s GDP growing at close to 7 per cent and the country gearing up to become a $5 trillion economy by 2025, the growth in power demand is expected to continue as economic activity expands further.
As per the CEA’s load generation balancing report 2023-24, the energy requirement in 2023-24 is expected to be 1,589 BUs, an increase of 5 per cent over the previous year. While a moderation in growth is expected due to the base effect, it is still expected to surpass the compound annual growth rate (CAGR) of around 4 per cent witnessed in the 10-year period FY2012 to FY2022.
Tapping gas-based capacity
As a part of its multi-pronged strategy to tackle the demand surge in the upcoming summer season, the MoP is looking to utilise the country’s gas-based generation capacity. India has an installed gas-based capacity of 25 GW, but almost 14 GW of it is not operational. Most of the gas-based power units have been lying idle or been operating at low capacity due to the non-availability of affordable fuel.
The power ministry has directed NTPC Limited to operationalise around 5,000 MW of its gas-based generation capacity during the critical period of April-May 2023. GAIL India will supply 248 metric million British thermal units (mmBtu) of gas for this.
Furthermore, for the first time, the government has issued a tender to procure gas-based power from state and privately owned stations. Following the MoP’s directives, NTPC Vidyut Vyapar Nigam (NVVN), a subsidiary of NTPC Limited, has floated a tender for procuring 4 GW of power from gas-based plants on a competitive bidding basis during the crunch period, projected from April 10 to May 16, 2023. The procured gas-based power, which is usually more expensive than thermal or solar power, will be sold through the power exchanges by NVVN. It is expected that this power will be sold in the day-ahead market (DAM) so that there is a moderating effect in the clearing price. In case of any shortfall in realising the cost, NVVN is expected to be supported by the Power System Development Fund.
Making adequate coal available
One of the key steps planned to meet the expected spike in power demand is to utilise the coal-based power generation capacity to the fullest. Invoking Section 11 of the Electricity Act, 2003, the power ministry has directed that imported coal-based plants need to operate at full capacity. The ministry has also issued directions to central and state gencos as well as independent power producers (IPPs) to import coal for blending at the rate of 6 per cent by weight till September 2023. To recall, these measures were earlier undertaken to tackle the summer peak in 2022 and, in view of the benefits realised, these have now been planned to tackle the upcoming summer demand.
Coal demand for power generation continues to be robust and on an upward trajectory. The all-India coal production in financial year 2022-23 (up to February 2023) is 785.24 million tonnes (mt), an increase of about 15.14 per cent over the previous year. For 2023-24, the projected coal demand to fulfil the requirement of domestic coal-based plants is projected at 821 mt by the MoP. Given that coal is the major source of energy in India, its demand is expected to increase and peak likely between 2030 and 2035.
One of the key bottlenecks in ensuring adequate availability of domestic coal at power plants is logistical constraints. While rake availability for coal transportation has increased in recent years, it continues to be insufficient to meet the coal transportation requirement. The Ministry of Railways has agreed to provide 418 rakes per day to different subsidiaries of Coal India Limited (CIL) and captive blocks in the coming months as against a rake availability of 408 per day in 2022-23. However, the power ministry has noted that the expected availability of coal from domestic sources (CIL, Singareni Collieries Company Limited and captive coal mines) will be around 201 mt during the period April-June 2023, as against a requirement of 222 mt, due to transportation constraints. In view of this, it has devised a methodology for fair distribution of coal amongst the gencos – state owned, centrally owned and IPPs – wherein domestic coal will be allocated in the ratio of the fortnightly average generation of generating stations.
As a part of the overall strategy to utilise the available generation capacity to the fullest, the MoP has launched the High Price Day Ahead Market (HP-DAM). This will allow power from gas-based plants, imported coal-based plants and battery-energy storage systems to be sold in the market. Only those generating capacities that have a generation cost of more than Rs 12 per unit will be allowed to operate in the HP-DAM.
The introduction of the HP-DAM has been under discussion for some time now. In the summer of 2022, when peak power demand touched an all-time high, power prices surged to Rs 20 per unit on the power exchange. This led the Central Electricity Regulatory Commission (CERC) to impose a price cap of Rs 12 per unit on power traded on the exchanges, which rationalised the prices for buyers. However, with this, the expensive power from gas-based plants, imported coal-based plants and the renewable energy stored in battery energy storage systems could not be traded on the exchanges. HP-DAM, a first-of-its-kind initiative to be implemented in the power market, aims to addresses this problem and ensure that all the generation capacity is put to use.
Government launches PUShP
The power ministry has launched the Surplus Power Portal (PUShP), a one-of-its-kind initiative. With this, discoms will be able to indicate their surplus power in block times/days/months on the portal. Discoms that need power will be able to requisition the surplus power. The new buyer will have to pay both the variable charge and the fixed cost as determined by the regulators. Once power has been reassigned, the original beneficiary will have no right of recall as the entire fixed cost liability would have shifted to the new beneficiary. The financial liability of the new buyer will be limited to the quantum of the temporary allocated/transferred power. This will reduce the fixed cost burden on the discoms and also enable all the available generation capacity to be utilised.
Impact and the way forward
The measures planned by the power ministry for the summer season are welcome and are expected to mitigate the problem. “Given this level of preparedness, we are optimistic that the power demand spike will be managed more efficiently in the upcoming summer season. Gradually increasing coal supply and easing e-auction coal prices are expected to lower the clearing price on the exchange, providing cost optimisation opportunities to discoms and open access consumers,” says Rohit Bajaj, head-business development, regulatory affairs and strategy, Indian Energy Exchange.
Although the various initiatives introduced by the MoP will increase power availability in the country, the cost of power will undoubtedly increase. Vibhuti Garg, director, South Asia, Institute for Energy Economics and Financial Analysis, explains: “The government wants to utilise its expensive capacity that is lying under-utilised to meet the demand. While this may raise prices during certain hours, the loss of value for businesses will be minimised. Given that India is setting up a huge manufacturing base, reliable and continuous supply of electricity is required. While some of the C&I (commercial and industrial) consumers can absorb the high prices, the increased prices also mean a high subsidy burden for the government as the retail tariff for residential and agriculture is low and the government will have to compensate discoms for buying expensive power.”
With power demand expected to continue on an upward trajectory in the coming years, it is important to put in place a holistic roadmap vis-à-vis adopting an ad hoc approach to dealing with the rising demand. “Meeting this demand requires a multi-faceted and long-term strategy that includes both increasing the power generation capacity, diversifying the energy mix and improving the efficiency of the power distribution segment. Coal production can be further enhanced to ensure availability of sufficient coal all year round. Under-construction thermal power plants of more than 25 GW capacity, the majority of which will get commissioned in the next one to two years, will further improve supply,” says Bajaj.
Augmenting renewable energy capacity along with affordable energy storage solutions is also a must. “In the long term, the government should build low-cost renewable energy and hybrid power using wind, solar or some amount of storage to provide round-the-clock power. Wind and solar are complementary and many developers are able to use them to meet their demand obligation with very low use of storage. This would be the least-cost way of meeting demand reliably and in a sustainable manner,” says Garg.
To conclude, the growth in power demand is expected to continue, going forward, led by increased economic activity and per capita electricity consumption. As the country gears up to meet this demand, the focus needs to remain on renewable energy expansion and decarbonisation in order to realise India’s climate change mitigation goals.