Improving industry demand is expected to prop up India’s energy consumption by over ~75 billion units (BUs) this fiscal, or 5% on-year – the fastest growth in the past three fiscals. The heightened demand will be met largely by thermal generation companies (gencos) as generation from renewable, hydro and nuclear remains small at less than 25% of the overall generation mix. That should charge up plant load factor (PLFs) of thermal gencos to ~58%, higher than the pre-pandemic level of 56%.

After a cumulative growth of 5.5% in the three fiscals through 2019, growth in power demand had fallen to ~1% for fiscal 2020 (see chart 1 in annexure) due to lower economic activity in second half of that fiscal. Then, in fiscal 2021, demand declined by 0.5% – an aberration not seen in decades – as the pandemic brought commercial and industrial activity to a grinding halt, particularly in the first half.

Says Ankit Hakhu, Director, CRISIL Ratings, “Growth in power consumption this fiscal would be a break from the muted trend seen in the past two fiscals. It will ride on an expected recovery in industrial activity amid healthy GDP growth, forecast at 9.5% on-year. The on-year growth of over 5% or 75 BUs would have been higher by as much as 100 basis points (bps), but for the second wave that hit us in the first quarter of this fiscal.”

Bulk of the incremental demand is expected to be absorbed by existing thermal capacities. Though ~13 GW of renewable capacities (predominantly solar) will be added during the fiscal, these are likely to incrementally contribute only 10-12 BUs of generation. That is because their PLFs are expected to be low at 20-25% and their commissioning will be spread out through the year.

Hydro generation, which has been at a record high for the past two years, will be lower this fiscal as water levels of snow-fed plants were adversely impacted by lower snowfall last winter, although monsoon is expected to be normal this fiscal.

Nuclear generation is not expected to materially add any more units than it did the previous fiscal.

Says Rohan Kulshrestha, Associate Director, CRISIL Ratings, “Tepid growth in generation from other sources will drive ~90% of the incremental demand to be absorbed by thermal capacities. This, coupled with limited thermal capacity additions of ~5 GW will drive a 200 bps expansion in PLFs of thermal gencos compared with the pre-pandemic level of fiscal 2020.” (See chart 2 in annexure)

The growth in demand and improvement in PLFs assume a gradual recovery over the rest of the fiscal and remain sensitive to any lockdowns imposed in response to further waves of Covid-19.