Power demand to grow over 5% this fiscal, a three year high
India's energy use is expected to grow by over 75 Billion Units (BUs), which is 5% more than the year before. It has experienced the fastest growth in its three previous fiscals. Due to the small share of overall generation mix, renewable, hydro, and nuclear still make up less than 25%. This will drive the heightened demand for thermal generation companies. This should increase thermal gencos’ plant load factors (PLFs) to 58%. This is significantly higher than the 56% level before the pandemic.
After a cumulative growth rate of 5.5% through 2019, the growth in power demand was 1% for fiscal 2020 . This is due to lower levels of economic activity in the second quarter of that fiscal. In fiscal 2021, demand decreased by 0.5%. This was a significant change in several decades. It was due to lower economic activity in the second half of that fiscal.
Ankit Hakhu director, CRISIL ratings says that "Growths of power consumption this fiscal would mark a break from the muted tendency seen in both the previous fiscals." It will benefit from an expected recovery and healthy growth in GDP, forecast at 9.5% year-over-year. If we had not been hit by the second wave in this fiscal b>, our on-year growth would have been over 5% (75 BUs) instead of a more robust 8%.
Most of the incremental energy demand will be met by existing thermal resources. While a fiscal will see the addition of 13GW of renewable capacities, primarily solar, these are expected to contribute incrementally only 10-12 units of generation. It is because their PLFs (predominantly solar) are expected to be low at 20%-25% and that their commissioning won't be done in one year.
Hydro generation which has been at an unprecedented high for two years is likely to drop this fiscal. The lower snowfall in last winter meant that water levels of snow-fed plants would be adversely affected. However, this fiscal's monsoon will be expected to be fairly normal.
Nuclear generation is unlikely to add more units than in the previous fiscal.
Rohan Kumar Kulshrestha is Associate Director at CRISIL Ratings. He says, "Tepid growth from other sources will result in 90% more of the incremental need to be absorbed thermal capacities." This, along with limited thermal capacity increases of 5GW will drive 200 bps growth in PLFs to thermal gencos as compared with fiscal 2020's level. The improvement in PLFs and growth in demand suggest a gradual recovery.