India’s power demand is seen growing over 6 per cent for the second straight fiscal year, and above the pre-pandemic levels and the long-period average growth of 5 per cent. This trend of above-average growth could continue for two more fiscals, according to a news release by CRISIL.


The past three decadal trends show power demand tangoes economic cycles. On average, it has grown 100 basis points slower than gross domestic product (GDP).


The rating agency foresees India’s GDP growth at 7.3 per cent this fiscal year.


Last fiscal, demand grew 8.2 per cent over fiscal 2021 (when it had contracted 1.2 per cent due to the pandemic) and 6.9 per cent above the pre-pandemic levels (fiscal 2020), underscoring the robustness of recovery. This was driven by the commercial and industrial (C&I) segments, as manufacturing and services activity picked up.


The first quarter of this fiscal has already seen 18.7 per cent on-year growth, in line with economic recovery.


Hetal Gandhi, director, CRISIL Research, said, “The first quarter may have accounted for 75 per cent of the expected incremental power demand for this fiscal, with consumption surging across key categories — agriculture, residential, and C&I. While rising ambient temperatures have propped residential offtake, high prices of diesel has cranked up demand for subsidised power from the farm sector. The upcoming festive season, if robust, will also trigger higher-than-expected power demand growth.”


The CRISIL Research forecast assumes slower growth in the second and third quarters, amid expectations of lower export growth, because of rising recession concerns in two of India’s top trade partners.


Interestingly, over the past decade, peak power demand — which is the highest demand in a specific period — has consistently grown faster than base power demand, or the total power requirement.


Surging peak demand increases the need for rapid generation at utilities. Short-term power purchases accounted for 13 per cent of overall generation last fiscal — a 300 bps rise in just a year. Within this, the share of power exchange volume spiked 46 per cent from an average 30 per cent over the past decade.


The trend is no different this year. Peak demand in the first quarter grew 20 per cent, while base demand rose 19 per cent.


That, and supply constraints, triggered a sharp increase in spot electricity prices, which led the government to cap spot prices. In terms of net bids, not only did purchases rise substantially, but also sellers were limited amid supply constraints due to high international prices of coal and natural gas.


Periods in which purchase bids were higher than sale bids led to disproportionate increase in spot prices.


Surbhi Kaushal, associate director, CRISIL Research, said, “The continuous rise in power exchange purchase bids has cranked up prices in the merchant markets to an average Rs 7.8 per unit in the first quarter1 versus Rs 4.4 per unit last fiscal year. With demand forecast to be high this year, too, dependency on the short-term market would sustain. That should keep merchant tariffs above Rs 5 per unit this fiscal.”


Those queuing up at the exchange are states with either a high share of C&I consumers (43 per cent on average), or high dependency on coal-based power supply (60 per cent on average, in the fuel mix), along with heavy dependence on imported coal-based power plants.


With high demand growth and coal supply constraints, these states are buying, on average, 2.7x of their normal procurement of the past five years.