Sun & Steel: What's Driving India's Power Demand To All-time High?

A spurt in usage of cooling equipment amid severe and prolonged heatwaves across the country, together with strong manufacturing activity, ensured robust demand for power in the first two months of this fiscal said Crisil in its monthly report. Power demand is likely to have grown 13 per cent compared with April to May 2023. In May, power demand is estimated to have surged to 156 billion units (BUs), logging a 15 per cent on-year increase.

“Excessive temperature and humidity – Global Warming, especially high minimum (night) temperatures have significantly increased the demand for cooling solutions, thereby driving up power usage. Whereas, rapid urbanization – the surge of the urban population, which inherently leads to higher energy consumption as more people adopt urban lifestyles that rely heavily on electricity. Increase in purchasing capacity has enabled more households to afford air conditioners, refrigerators, and other power-intensive appliances, further elevating power consumption,” said Manish Dabkara MD and Chairman, EKI Energy Services.

According to the International Energy Agency (IEA), for every one-degree increase in the average daily temperature above 24 degree Celsius in India, it increases a 2 per cent rise in electricity demand. Demand fluctuations brought on by shifting cooling requirements also pose the risk of shortages, limitations, blackouts, and brownouts.

“The recent temperature surge has significantly pushed up power demand, with the country's peak demand reaching 250 GW this year surpassing the previous high of 243 GW recorded in September last year. In the first two months of the current financial year, India has seen a nearly 14 per cent year-over-year increase in electricity consumption,” said Rohit Bajaj, Executive Director, Business Development, Strategy and Regulatory Affairs, Indian Energy Exchange (IEX).

On the role of strong manufacturing activity in the unprecedented power demand, Manish said, “The manufacturing sector undeniably contributes to the overall increase in power demand due to its substantial energy requirements for production processes, machinery, and facilities. However, it may not be the primary driver behind power demand surges, which are seasonal. These surges are often more closely linked to factors like high temperatures in particular, which prompt heightened use of cooling systems, thus leading to spikes in electricity usage.”

He added that manufacturing operations tend to have a more stable and predictable energy demand pattern, aligned with production cycles and industrial activity levels. While ongoing industrialisation and sectoral development in manufacturing steadily raise the overall power demand, the abrupt peaks observed in power consumption during specific times of the year are largely attributed to climatic factors and residential energy use.

Nevertheless, manufacturing activity, as indicated by the Purchasing Managers’ Index (PMI), remained comfortably above the expansionary mark of 50 in April and May at 58.8 and 57.5, respectively. This boosted power demand from the commercial and industrial segment.

Overall power generation in the country is estimated to have increased 9 per cent and 18 per cent on-year in April and May, respectively, with the latter month recording a high of 169 BU. With the implementation of Section 11 for gas-based power plants, the share of gas in overall generation increased to 3.1 per cent in May 2024 from 1.6 per cent in May 2023.  At the other end, the share of coal in overall generation declined marginally, from 73 per cent to 72 per cent, while that of remaining fuels remained unchanged.

To cater to the rising demand for electricity, the report further stated that generators have been increasingly turning to the short-term power market. In line with the on-year increase in power demand, the volume traded in the short-term power market increased 29 per cent on-year in May. The volume in real-time-market (RTM) surged 38 per cent, indicating the  RTM sees a surge during periods of high power demand and the need for immediate delivery during spikes in power requirement.

“The combined measures of the government and regulators to mitigate the supply crunch, along with sufficient fuel availability and a rise in thermal power generation, have contributed to stabilising power prices. With the addition of hydropower during the monsoon, prices are expected to remain stable. As prices continue to remain competitive, particularly during the day time, there will be an opportunity for DISCOMs and Commercial & Industrial consumers to optimize their power procurement costs by leveraging power exchanges,” said Rohit.

With El Nino expected to wind down by June and La-Nina likely to settle in, growth in power demand is expected to ease in June and in the second quarter of this fiscal. Economic activity is expected to continue aiding growth in power demand. However, a normal monsoon is expected to limit power demand from the agricultural and domestic segments in the second quarter. In the milieu, CRISIL MI&A Research expects full-year power demand to increase 5.5-6.5 per cent on-year this fiscal.