Power Sector: Short-term Prices Elevated With Higher Demand, Low Coal Availability

India Ratings and Research (Ind-Ra) has published the September 2021 edition of its credit news digest on India's power sector. The report highlights the trends in the power sector, with a focus on capacity addition, generation, transmission, merchant power, deficit, regulatory changes and the recent rating actions by Ind-Ra.

The all-India energy demand continued to recover in August 2021 by 17.8% yoy to 129.4 billion units (BU). There was a recovery of demand in all the major manufacturing states such as Maharashtra (21.3%), Gujarat (23.5%) and Tamil Nadu (15.1%). Additionally, the all-India energy demand increased marginally in the first 20 days of September 2021 to 77BU (September 2020: 76BU), indicating a continued recovery. The all-India demand during 5MFY22 surpassed the pre-Covid levels at 597BU (5MFY21: 515BU, 5MFY20: 578BU).

Led by the continued improvement in demand, the average short-term price at Indian Energy Exchange increased significantly to INR5.06/kWh during August 2021 (August 2020: INR2.43/kWh), as the difference in the buy and sell bids turned positive to 404 million units (August 2020: negative 5,041 million units). The average short-term price for a day peaked at Rs 9/kWh during August, and the average short-term price for the first 20 days of September remained high at Rs 4.08/kWh.

With the recovery in demand, electricity generation (excluding renewables) increased 16.8% yoy to 120.8BU in August 2021 (July 2021: up 4%). Given the higher dependency on coal-based power with almost all other sources of power already on must run status, the plant load factor of coal-based power plants improved to 59.27% in August 2021 (August 2020: 49.01%; July 2021: 56.73%). Thermal generation contributed around 80% to the overall power in August 2021 (August 2020: 77%). The thermal sector's plant load factor rose on a yoy basis across the central, state and private sectors, increasing to 69.45% (August 2020: 58.47%), 54.38% (38.27%) and 72.94% (51.03%), respectively.

Electricity generation from renewable sources improved by 13.6% in August 2021 to 16.4BU, led by a 35% yoy improvement in the solar power generation to 5.24BU, despite a marginal 2% yoy decline in wind power generation to 8.75BU.