The month of August 2023, with a 36 per cent deficit in rainfall, saw a spike in power demand with peak demand rising closer to 240 GW, said Kotak Institutional Equities. The temporal distribution of monsoons normally causes spikes in power demand in the months of August/September due to irrigation requirements as well as rising temperatures, which got aggravated by little rainfall in most parts of the country this year.
This peak demand has raised the debate about sustainable demand-supply dynamics and the need for new investments. “We break our response into two parts: 1) in the short term, the demand-supply mismatch is seasonal and recurs almost every year and 2) in the medium term, the spate of capacity addition has moderated in the last five years, and the demand-supply mismatch is raising its head again. Investment in new capacity creation—coal or renewable—will have to pick up pace from hereon,” Kotak said.
It further said that the coal-based capacities which is a key source of generation in India, are usually under maintenance sutdowns during this period. The hydro generation also appears to have impacted in the current quarter due to the weak monsoon, however this sees a pickup in utilization in these months, further leading to disruption of supplies. “We highlight that this is a typical seasonal phenomenon toward the end of every monsoon, though the impact was higher this year due to little/no rainfall,” it said.
The report further stated that there is a need for new investment on capacity addition in order to meet the increased demand. “Incremental capacity addition to meet India’s rising power demand has moderated to 19 GW per annum (average) in the last 10 years, which has been dominated by renewable capacity additions,” it said. In the last decade, over 50 per cent of the capacity addition has been in renewables which further rose to ~90 per cent share of capacity additions in the last two years each. India has 424 GW of installed capacity (August 2023), with 213 GW of coal-based capacities. However, the throughput capacity (adjusting for plant utilization) is much lower at 200-220 GW, depending on the PLFs at any point. At 6 per cent demand growth, India needs to add 12-13 GW of incremental throughput capacity per annum, which equates to 17-18 GW of coal-based capacity (70 per cent PLF) or 48-50 GW of renewable capacity (25 per cent PLF) or a combination of these two.
While the Kotak report said that the current demand-supply mismatch will ease upon the onset of winter (early December) with demand moderating and coal capacities coming out of their maintenance shutdowns, India’s power sector needs renewed impetus on capacity addition. “We continue to see an increasing frequency of such deficits due to a narrowing capacity surplus. India’s power sector needs renewed impetus on capacity addition—coal-based capacities take longer (5-7 years) than renewable (1.5-2 years), cost more, and are not environmentally friendly, but need lesser investment for storage relative to renewable. In our view, the end game would be a combination of coal and renewable capacities, though the pace of capacity addition needs to accelerate from current levels,” it said.