Pulling Out All the Stops: MoP devises a multi-pronged strategy to cope with the summer peak

The Ministry of Power (MoP) is gea­ring up in a big way to me­et the power demand in the upcoming summer season, with the peak dema­nd expected to hit an all-time high of 229 GW in April 2023. Main­taining uninterrupted power supply and me­eting the growing demand is a top priority for the government and policymakers. This, of cour­se, is no me­an task. With the harsh summer and gro­w­ing eco­no­mic activity, power dema­nd is likely to reach record levels.

The power ministry has devised a multi-pronged strategy to meet the anticipated de­mand in the co­ming months. Notably, it pla­ns to utilise the country’s gas-based generation capacity, which has been operating at suboptimal levels for a long time, to enhance the availability of pow­er. It also aims to uti­lise the existing coal-based installed capacity to the fullest by ensuring adequate coal supplies.

Growing power demand

During 2022-23, the total energy req­uire­ment and supply in the country inc­reased by 9.8 per cent and 9.7 per cent respectively over the previous year. The peak demand and peak demand met in­c­reased by 6.3 per cent and 3.3 per cent respectively as compared to 2021- 22.

Power demand in the country recovered swiftly from the slump witnessed during the pandemic, and continued on an upward trajectory. The sustained recovery in economic activity following the Covid-19 pandemic and the severe summer characterised by heat waves, er­ra­tic weather and dry spells were some of the key reasons for the increase in power de­ma­nd. Notably, India has emerged as one of the fastest growing countries in te­rms of power demand. While power demand in the country reached a deca­dal high of 9-10 per cent in 2022, the Asia-Pacific region clocked a growth of ar­ound 3.3 per cent during the year.

The growth in energy requirement and peak power demand is expected to conti­nue. As per the Central Electricity Au­tho­rity (CEA), peak electricity dema­nd is ex­pected to touch an all-time high of 229 GW in April 2023. The demand is then expected to taper off as monsoon rains kick in. Energy demand is expected to re­a­ch 142,097 MUs in April 2023, the highest for the year, before easing to 141,464 MUs in May 2023, and falling to 117,049 MUs by November 2023. With In­dia’s GDP growing at close to 7 per cent and the country gearing up to become a $5 trillion economy by 2025, the growth in power demand is expected to continue as economic activity expan­ds further.

As per the CEA’s load generation balancing report 2023-24, the energy requirement in 2023-24 is expected to be 1,589 BUs, an inc­rease of 5 per cent over the previous year. While a moderation in growth is expected due to the base eff­ect, it is still expected to surpass the co­m­pound annual growth rate (CAGR) of around 4 per cent witnessed in the 10-year period 2012 to 2022.

Tapping gas-based capacity

As a part of its multi-pronged st­r­a­­­tegy to tackle the demand sur­ge in the up­coming summer season, the MoP is looking to utilise the country’s gas-bas­ed gene­rati­on ca­pacity. India has an ins­ta­ll­ed gas-based capacity of 25 GW, but almost 14 GW of it is not op­erational. Most of the gas-based po­wer units have been ly­ing idle or been operating at low ca­pacity due to the non-availability of affordable fuel.

The power ministry has directed NTPC Li­mited to operationalise arou­nd 5,000 MW of its gas-based generation capacity during the critical period of April-May 2023. GAIL India will supply 248 me­t­ric million British thermal units (mmBtu) of gas for this.

Furthermore, for the first time, the government has issued a tender to procure gas-based power from state and privately owned stations. Following the MoP’s di­­rectives, NTPC Vidyut Vyapar Nigam (NVVN), a subsidiary of NTPC Limited, has floated a tender for procuring 4 GW of power from gas-based plants on a competitive bidding basis during the crunch period, projected from April 10 to May 16, 2023. The procured gas-based power, which is usually more expensive than thermal or solar power, will be sold through the power exchanges by NVVN. It is expected that this power will be sold in the day-ahead market (DAM) so that there is a moderating effect in the clearing price. In case of any shortfall in realising the cost, NVVN is expected to be supported by the Power System Deve­lop­ment Fund.

Making adequate coal available

One of the key steps planned to meet the ex­pected spike in power demand is to utilise the coal-based power generation capacity to the fullest. Invoking Section 11 of the Electricity Act, 2003, the power ministry has directed that imported coal-based plants need to operate at full capacity. The ministry has also issued directions to central and state gencos as well as independent power producers (IPPs) to import coal for blending at the rate of 6 per cent by weight till Sep­tem­ber 2023. To recall, these measures were earlier undertaken to tackle the summer peak in 2022 and, in view of the benefits realis­ed, these have now been planned to tackle the upcoming summer dema­nd.

Coal demand for power generation continues to be robust and on an upward trajectory. The all-India coal production in financial year 2022-23 (up to February 2023) is 785.24 million tonnes (mt), an increase of about 15.14 per cent over the previous year. For 2023-24, the projected coal demand to fulfil the requirement of domestic coal-based plants is projected at 821 mt by the MoP. Given that coal is the major source of energy in India, its de­mand is expected to increase and pe­ak likely between 2030 and 2035.

One of the key bottlenecks in ensuring adequate availability of domestic coal at power pla­nts is logistical constraints. Wh­ile rake availability for coal transpo­rtation has increased in recent years, it continues to be insufficient to meet the coal transportation requirement. The Ministry of Railways has agreed to provide 418 rakes per day to different subsidiaries of Coal In­dia Limited (CIL) and captive blocks in the coming months as against a rake availability of 408 per day in 2022-23. However, the power ministry has noted that the expected availability of coal from domestic sources (CIL, Sin­gareni Collieries Company Limited and captive coal mines) will be around 201 mt during the period April-June 2023, as against a requirement of 222 mt, due to transportation cons­traints. In view of this, it has devised a methodology for fair distribution of coal amongst the gencos – state owned, centrally owned and IPPs – wherein domestic coal will be allocated in the ratio of the fortnightly average ge­ne­ra­tion of generating stations.

Introducing HP-DAM

As a part of the overall strategy to utilise the available generation capacity to the fullest, the MoP has launched the high-price day-ahead mar­ket (HP-DAM). This will allow power from gas-based plants, imported coal-based plants and battery energy storage systems to be sold in the market.  Only those generating capaciti­es that have a generation cost of more th­an Rs 12 per unit will be allowed to operate in the HP-DAM.

The introduction of the HP-DAM has be­en under discussion for some time now. In the summer of 2022, when peak po­wer demand touched an all-time high, power prices surged to Rs 20 per unit on the power exchange. This led the Central El­ectricity Regulatory Commis­sion to impose a price cap of Rs 12 per unit on power traded on the exchan­ges, which ration­alised the prices for bu­y­ers. However, with this, the expensive power from gas-based plants, imported coal-based plants and the renewable en­ergy stored in battery energy storage sy­s­te­ms could not be traded on the exch­an­ges. HP-DAM, a first-of-its-kind initiative to be implemented in the power market, aims to address this problem and ensure that all the generation capa­city is put to use.

Government launches PUShP

The power ministry has launched the Surplus Power Portal (PUShP), a one-of-its-kind initiative. With this, discoms will be able to indicate their surplus power in block times/days­/months on the portal. Discoms that need power will be ab­le to requisition the surplus power. The new buyer will have to pay both the variable charge and the fixed cost as determined by the regulators. Once power has been reassigned, the original beneficiary will have no right of recall as the en­tire fi­xed cost liability would have sh­if­ted to the new beneficiary. The financial liability of the new bu­yer will be limited to the quantum of the temporary allocated/transferred power. This will redu­ce the fixed cost burden on the discoms and also enable all the available generation capacity to be utilised.

Impact and the way forward

The measures planned by the power ministry for the summer season are welcome and are expected to mitigate the problem. “Given this level of preparedness, we are optimistic that the power de­mand spike will be managed more efficiently in the upcoming summer season. Gradually increasing coal supply and easing e-auction coal prices are ex­pected to lower the clearing price on the exchange, providing cost optimisation opportunities to discoms and op­en ac­cess consumers,” says Rohit Bajaj, head, business development, regulatory affai­rs and strategy, Indian Energy Exchange.

Although the various initiatives introdu­ced by the MoP will increase power av­ailability in the country, the cost of po­wer will un­do­ubtedly increase. Vi­bhu­­ti Garg, director, South Asia, Institu­te for Energy Economics and Financial Analy­sis, explains: “The government wa­nts to utilise its expensive capacity that is lying underutilised to meet the de­mand. Whi­le this may raise prices du­ring certain hours, the loss of value for businesses will be minimised. Given that India is set­ting up a huge manufacturing base, reliable and continuous su­pply of electricity is required. While some of commercial and indu­s­trial consumers can absorb the high prices, the increas­ed prices also mean a high subsidy burden for the government as the retail tariff for residential and agriculture is low and the government will have to compensate discoms for buying expensive power.”

With power demand expected to continue on an upward trajectory in the coming years, it is important to put in place a holistic roadmap vis-à-vis adopting an ad hoc approach to dealing with the rising demand. “Meeting this de­ma­nd re­quires a multifaceted and long-term st­ra­tegy that includes both increasing the power generation capacity, diversifying the energy mix and improving the ef­fi­ciency of the power distribution segme­nt. Coal production can be further en­hanced to ensure availability of sufficient coal all year round. Under-cons­truction th­ermal power plants of more than 25 GW capacity, the majority of which will get commissioned in the next one to two years, will further impro­ve supply,” says Bajaj.

Augmenting renewable energy capacity along with affordable energy storage sol­­u­tions is also a must. “In the long te­rm, the government should build low-cost renewable energy and hy­brid pow­er us­ing wind, solar or some am­ount of sto­rage to provide round-the-clock pow­er. Wind and solar are complementary and many develo­pers are able to use them to meet their dema­nd obligation with very low use of storage. This wou­ld be the lea­st-cost way of meeting demand re­liably and in a sustainable manner,” says Garg.

To conclude, the growth in power dema­nd is expected to continue, going forward, led by increased economic activity and per capita el­ectricity consumption. As the country gears up to meet this de­mand, the focus needs to re­ma­in on re­ne­wable energy expansion and decarbonisation in order to realise India’s climate change mitigation goals.

Priyanka Kwatra