The Indian power sector is under considerable stress. If we are already not in a crisis, we are hurtling towards one. Grid demand has touched 207 GW in April 2022, caused by an early summer and post COVID economic recovery. This portends greater challenges in the months to come since April is historically not a high demand month. Basis past data (from pre-COVID periods) the peak demand can be anticipated to be in the range of 210 – 215 GW in the current FY.
The supply side has been affected severely for several reasons including:
- New conventional capacities – thermal and hydro – are not coming up in adequate measure. New projects pipeline has become very weak. Only some (mostly delayed) projects from the past are coming on-line. The addition during the previous financial year (FY 22) was only a miniscule 1.4 GW from conventional projectsi.
- For conventional projects, fuel remains a constraint. As international spot coal prices have come to be 4-5X of pre-COVID years. Spot gas have risen even more than that and it is become commercially infeasible to use imported coal or gas under current contractual or power market dispensations. The tight and inflexible long-term contracts do not allow the latitude to use high-cost fuel even in emergencies. Consequently, there is a contractual and regulatory logjam on imported fuel.
Domestic fuel is stretched to capacity and stocks have fallen, with real fear of dry outs especially if demand sustains.
- Renewable energy projects are inadequate to meet the energy and peak demand growth
- A relatively small amount of 13.5 GW has been commissioned in FY 22, a large part of which was also a consequence of slippage from the prior COVID affected year1.
- Most of the commissioned projects are in the solar sector which meet afternoon needs but not the evening peak
- Much of the recent Solar Energy Corporation of India (SECI) contracted capacity has not yet found off takers from Discoms
- The volatile commodity and materials/equipment prices in the international markets for renewable energy turn the delays into commercially infeasible proposition for project development as time passes
- The cash flow stress caused by delayed payments by Discoms makes the situation even worse.
There is still idle talk of India being a power surplus nation. It sends totally wrong signals. The reality is that Indian power demand will continue to grow if the economy grows. A 5 percent growth per annum in energy and peak demand is only to be anticipated. This will mean 220-225 GW of peak demand in FY 24 and 230-235 GW in FY 25 and 243 – 250 GW by FY 26. We are simply not building enough capacity for that kind of peak. Our system reserves will be deep in negative if that likely scenario materializes.
From economic as well as political standpoint the time for action is now because the costs would be unaffordable. Here are a few things to do forthwith:
- Ask Load Serving Entities (LSE), primarily Discoms to mandatorily demonstrate capacity adequacy for next 3 years at the minimum by estimating likely demand (under various growth scenarios) across the various months and also presenting credible supply options, including for reserve margins. This doesnot need amendment to laws or policy; it can be done through stipulations of the Indian Electricity Grid Code (IEGC). The IEGC is a mandatory instrument under Electricity Act 2003
- In case the LSE does not have adequate supplies, it should be required (through the IEGC or otherwise) to contract to meet the requirements
- Some amount of play will be available through power markets. For this the CERC should make estimates of capacity in power markets and limit any excessive reliance on short term markets for capacity adequacy statements of LSEs
- Brownfield power plants including extensions and replacement of inefficient units should be prioritized. This must be done principally in pithead locations
- Domestic coal supply augmentation must be supplemented with other alternatives including torrefied municipal solid waste (MSW) and biomass. This would address both fuel and environmental problems
- Renewables including wind should be ramped up rapidly. Wind is important since it has some capacity value and can balance the diurnal patterns of solar. We will need the 500 GW of renewables committed in the Panchamrit by PM Modi. As of today, we are not on track for it
- Storage must be prioritized for peaking and ancillary (ramping) requirements. The Lithium-Ion battery storage market will remain volatile and alternative static storage projects need rapid ramping including alternate battery chemistries, off-river pumped storage, gravity storage, etc.
- The National Electricity Plan should be refreshed every two years instead of the five-year cycle and should indicate transmission capacity addition priorities based on anticipated generation and load
- For the immediate challenges the stranded capacities must be utilized through alternate dispensations that allow for overriding the rigidities of prior contracts and allow for use of the capacity when the nation requires.
Policy making must prioritize the essential over the desirable. While changes in law and policy may be desirable, the Electricity Act, 2003 provides most of the essential sustenance for the actions required if we use the features of act appropriately. We must stop alternating between chasing chimeras and tilting at windmills.
There is a scope of improvement in the power sector considering long gestation periods in every aspect ranging from generation, capacity augmentation, transmission linkages, fuels etc. These improvements can begin with revamping our legacy frame of long-term contracts. The crisis approaching is real. It will require long term planning approaches to be combined with short term measures. In our federal polity it will require alignment of diverse stakeholders. Well-crafted, authentic communication that the stakeholders can relate to and align with will be necessary. There will be costs that may seem excessive when seen in isolation but will be outweighed by the benefits economy shall face from the anticipated threats. As long as those payoffs are genuine and reasonable, we will have to act promptly. This problem has been long in the making and demands action in expeditious manner NOW, to avoid regret in the future
A version of this article appeared in The Economic Times -Energyworld.com April 2022.
 Business Standard, dated April 21, 2022.
[i] Basis CEA reports for capacity on March 2022 and March 2021. It is possible that the March 2022 report is provisional, and figures may change. However, the order of magnitude is discernible.