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Key Findings

Analysis reveals that coal availability and peak demand shortages were not the main drivers of high prices at the power exchanges in August and September.

The increase in future demand can be met through renewable energy along with flexible generation sources plus battery storage, the prices of which are higher for now and likely to go down in future.

IEEFA notes that the challenge of India’s growing daily peak demand does not require investment in excess baseload thermal capacity.

Executive Summary

Electricity demand in India has peaked and dropped markedly as the country went into and out of COVID-19 lockdowns, exceeding seasonal peaks and declines.

The pandemic hit the world in 2020 and in India, with two months of complete lockdown until the end of May, electricity demand dropped, only to return to pre-pandemic levels as the lockdown eased and economic activities picked up.

In the second wave in April 2021, states announced partial lockdowns and demand declined again. As the economy bounced back quickly, electricity demand has shot up, especially in the past few weeks.

Lockdowns also slowed renewable energy installation. The government target of 175GW by 2022 and 450GW by 2030 requires annual installation of 25- 30GW. The pace of installation is lagging with ~7GW of renewable energy capacity added in FY2020/21.

The Indian economy is on the path to recovery and the accompanying rise in electricity demand caused prices on the power exchange to skyrocket in the evening peak hours in August.

What led to such an increase and are these very high prices momentary or likely to continue? What was the cause -- the declining availability of thermal or renewable energy generation or a sudden spike in electricity demand? Can the prices be attributed to increased supply gap due to extreme weather or special occasions such as festivals?

This note tries to evaluate the drivers for such high prices on the power exchange and how, with more deployment of renewable energy along with storage technologies, such price shocks can be prevented. Analysis identifies what changed in the past year but, given that 2020 was a COVID-19 year, comparison is also made to 2019 and 2018. Demand and supply in 2021 is compared not only to 2020 levels but to previous years as the economy witnessed a downturn from August 2019 to January 2020 with a minor recovery in February 2020, before the pandemic hit the economy again.

Vibhuti Garg

Vibhuti Garg is an energy economist and IEEFA Director, South Asia. Vibhuti’s focus is on promoting sustainable development through influencing policy intervention on energy pricing, adoption of new technologies, subsidy reforms, enhancing clean energy access, access to capital and private participation in various areas of the energy sector. 

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