Commodities

Power demand set to grow this fiscal

Our Bureau Hyderabad | Updated on July 29, 2021

Thermal plants to be main generators to meet the higher demand

Improving industry demand is expected to prop up the country’s energy consumption by over 75 billion units (BUs) this fiscal, or 5% on-year, the fastest growth in the past three fiscals.

The heightened demand will be met mainly by thermal generation companies as renewable, hydro and nuclear generation remains small at less than 25% of the overall generation mix. That should charge up plant load factor (PLFs) of thermal gencos to 58%, higher than the pre-pandemic level of 56%, according to a CRISIL statement.

After a cumulative growth of 5.5% in the three fiscals through 2019, growth in power demand had fallen in fiscal 2020 due to lower economic activity in the second half of that fiscal year. Then, in fiscal 2021, demand declined as the pandemic brought commercial and industrial activity to a grinding halt, particularly in the first half.

Ankit Hakhu, Director, CRISIL Ratings, said, “Growth in power consumption this fiscal would be a break from the muted trend seen in the past two fiscals. It will ride on an expected recovery in industrial activity amid healthy GDP growth, forecast at 9.5% on-year. The on-year growth of over 5% or 75 BUs would have been higher by as much as 100 basis points (bps), but for the second wave that hit us in the first quarter of this fiscal.”

Thermal sector to absorb demand

The bulk of the incremental demand is expected to be absorbed by existing thermal capacities. Though 13 GW of renewable capacities, predominantly solar, will be added during the fiscal year, these are likely to contribute only 10-12 BUs of generation incrementally. Their PLFs are expected to be low at 20-25 per cent, and their commissioning will be spread out through the year. Hydro generation, which has been at a record high for the past two years, will be lower this fiscal as water levels of snow-fed plants were adversely impacted by lower snowfall last winter. However, the monsoon is expected to be normal this fiscal. Nuclear generation is not likely to materially add any more units than it did the previous fiscal.

Rohan Kulshrestha, Associate Director, CRISIL Ratings, “Tepid growth in generation from other sources will drive the incremental demand to be absorbed by thermal capacities. This, coupled with limited thermal capacity additions of 5 GW will drive higher PLFs of thermal gencos compared with the pre-pandemic level of fiscal 2020.”

The growth in demand and improvement in PLFs assume a gradual recovery over the rest of the fiscal and remain sensitive to any lockdowns in response to further waves of Covid-19.

Published on July 29, 2021

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