Slowdown hits growth in power demand

The growth in the demand for electricity has slowed to 2 per cent in the January- October period this year as industries are closing and new factories are not being set up due to the current financial crisis. The demand for power grew 9 per cent in the same period last year.

Factories account for around 30 per cent of the total power consumed in the country.

The slump in the demand for power has also resulted in peak-time power deficit across the country falling to 13.1 per cent in October this year from 17.1 per cent in January 2008. In October 2007, the peak power deficit was 14.6 per cent, data compiled by the Central Electricity Authority showed.

“The price of electricity can come down a little, if the reduced deficit in power supply continues. There is a strong correlation between the gross domestic product (GDP) growth and power demand,” said Arvind Mahajan, executive director, KPMG Advisory Services.

Every 1 per cent increase in GDP results in about 0.9 per cent increase in the demand for power. At the beginning of this financial year, economists had estimated the GDP in the current year to grow at over 8 per cent. With the financial crisis hitting economies, growth projections have come down to 7 per cent.

KPMG’s Mahajan, however, added that the decreased power demand was unlikely to impact the power sector in the long term. “It will not affect the prospects of the industry. Eventually, the demand will go up as more capacity is added. In some states, demand still outstrips supply,” he said.

The power ministry has estimated that to maintain 8 per cent GDP growth, electricity demand will have to increase to 859 billion units by the end of the current Plan period (2007-2012). A 7 per cent GDP growth rate will still require about 820 billion units of electricity.