Peak power demand to bounce back in FY21 depending on industrial activity

Peak power demand is slated to bounce back in FY21, depending on Index of Industrial Production (IIP) and recovery in capital goods.

A report by Axis Capital on the power sector shows that energy demand was lacklustre in FY20 due to subdued economic activity, extended monsoons and low residential demand.

The total per capita power consumption in the country is low due to tepid contributions from manufacturing and residential sectors. It is likely that a large part of this demand is hidden in agricultural load which accounts for 17.7 per cent of the consumption in FY19 as against the global average of two per cent, the report noted.

The country's top 14 cities account for 51 per cent of India's overall residential and commercial demand. Urbanization has fuelled demand from top 14 cities that have grown at a Compounded Annual Growth Rate (CAGR) of 7.7 per cent between FY12 and FY19 with tier-II cities outpacing the metros.

While growth in manufacturing hinges on expansion of industrial base, growth in domestic consumption is likely to continue on urbanization and irrigation drive. However, shift to solar agri pumps and rooftop solar by industries and commercial establishments will continue to hurt demand growth.

The central government has set an ambitious target of achieving nameplate capacity of 300 Gw solar and 160 Gw wind power capacity by 2030. Activity in solar power has gained momentum after 2019 elections with 27 Gw worth of projects auctioned for the next 18-24 months. The western states of Gujarat and Maharashtra have led the way for solar installations, now taking the baton from Rajasthan, Karnataka and Andhra Pradesh. However, two of the biggest solar capacity states- Karnataka and Andhra Pradesh have scaled back their plans for new solar capacities, flagging concerns on financial health of electricity distribution companies (discoms) and having committed to Renewable Purchase Obligations (RPOs) for the next three years.

According to an order by Karnataka Electricity Regulatory Commission, even now many discoms are defaulting in making payments for power supply to generators because of cash flow constraints. Besides, any further procurement is set to have adverse financial impact on discoms and also impact grid stability apart from resulting in higher tariff for consumers.

Some existing solar power projects face headwinds of grid curtailment and renegotiation of PPA (power purchase  agreement) tariffs in Andhra Pradesh.

The Central Electricity  Authority's (CEA) long-term energy mix projections target  40 per cent of electricity generation from renewables by 2030. The target envisages 25 GW capacity addition in solar and 10 Gw for wind every year.