IEEFA: Understanding India’s latest peak power demand record

Ramping up solar will be crucial as peak power demand hits during the day

At around noon on 7 July 2021, India’s instantaneous power demand touched a historic high of 200 gigawatts (GW), beating the previous all-time high of 197GW which had been reached only the day before. These two consecutive days of record-breaking peak demand marked a sharp increase from the high of 190GW in financial year (FY) 2020-21, seen just six months ago.

India’s instantaneous power demand touched a historic high of 200GW

This spike in instantaneous demand, especially the peak during the day instead of in the evening, has got the country’s power industry thinking about India’s changing daily load profile and utilising solar generation to meet daytime peak demands.

The strong electricity generation seen at the beginning of FY2021-22 dipped in May and June when many states were in lockdown due to the second wave of COVID-19. As the restrictions eased towards the end of June, electricity generation picked up and then saw a strong recovery in July.

In our view, the record high demand – aggregate as well as peak – on 7 July can be strongly linked to high temperatures in North India increasing the use of air conditioners, a spurt of commercial activity and the catching up of pent-up industrial demand following the lifting of lockdowns.

In fact, on 7 July the demand in North India reached 99.4% of the peak demand (75GW) it had set five days earlier on 2 July. The northern states of Haryana, Delhi, and Uttar Pradesh, and the north-eastern states of Sikkim and Manipur all had record energy consumption levels that day.

Keeping the lights on amid rising demand
India’s peak electricity record was 54% (~70GW) higher than in FY2011-12, implying a compound annual growth rate (CAGR) of 4.5% in the last decade. While the recent record peak in instantaneous demand might appear to be sudden and sharp, we should be wary of overestimating its future growth.

The Central Electricity Authority seems to have overestimated peak electricity demand

The Central Electricity Authority (CEA) seems to have overestimated the peak electricity demand. The CEA’s optimum generation capacity mix for 2030 report, published pre-COVID, projected that peak instantaneous demand would reach ~226GW in the current fiscal year – that’s ~26GW more than the 200GW peak seen this month.

Also, the CEA forecasts much higher growth going forward, with peak electricity demand to touch ~340GW by the end of 2030. This implies 6.9% CAGR, compared to 4.5% in last decade. If India’s peak demand continues its strong growth trajectory of the last decade, it will remain in the range of 285-300GW by the end of this decade.

Further, a couple of other aspects will materially impact the peak demand.

We believe that deflationary renewable energy tariffs will shave off some in-front-of-the-meter demand. And as commercial and industrial (C&I) customers increasingly look to serve their loads through renewable energy power purchase agreements (PPAs) via the open access mechanism, a significant load will shift from the grid to behind the meter.

Also, interestingly, all the peak demand records seen this year came during the day – a significant shift from peak hours previously seen during the evenings. With the load profile now changing and peaks occurring during daytime hours, adding more solar will be crucial. Ultra-low-cost solar power generation, which peaks during the afternoon hours of 12-3pm, can absorb the growing daytime air conditioning load.

Overestimating demand growth leads to stranded coal power assets
Overestimating power demand growth has led to India building more coal power capacity than it needs and the consistent underutilisation of its coal power fleet (with capacity factors of below 60% for the last 4 years).

Overestimating power demand growth has led to India building more coal power capacity than it needs

India must not repeat this mistake. There are already 33GW of under-construction coal power plants that will mostly come online in the next 36 months. The challenge of India’s growing daily peak demand does not require investment in excess baseload thermal capacity. Instead, the electricity system needs flexible and dynamic generation solutions in the form of battery storage, pumped hydro storage, peaking gas-fired capacity and flexible operation of its existing coal fleet.

Also, this challenge needs to be addressed proactively from the demand side, not just from the supply side. Demand response management will play a key role in keeping instantaneous demand in check. A time-of-day (ToD) pricing mechanism, which provides price signals to promote usage of power when the electricity demand is typically lower, could incentivise consumers to shift their loads to periods of low tariffs. A ToD mechanism could also incentivise investment into flexible solutions that could dispatch firm power during times of peak demand.

Ultimately, India could serve its growing power needs by modernising its electricity system to integrate the 450GW of variable renewable energy capacity targeted by 2030.

By Kashish Shah, Energy Finance Analyst, IEEFA and Aditya Lolla, Senior Electricity Policy Analyst, EMBER

This article first appeared in the Economic Times.

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