Power Demand-Supply Outlook

Supply Side
India has seen increased capacity addition in the recent years and we have also witnessed increased participation from the private players. However, implementation risks for power plants have increased substantially in the past 2-3 years. Of the ~200 GW of thermal plants announced between FY12 FY17, almost 40% have no site, 38% do not have environmental clearance and 50% have not finalised financing. As a result, construction activity is either slow or absent on almost 46% of this planned capacity. These statistics show that the announcement to actual implementation ratio will remain below 50%. Historically too, the actual implementation of projects has been 45-55% of targeted capacity addition. While the generation space has seen a significant increase in players (especially from the private sector), policy landscape in India has not changed and hence it is becoming more difficult for companies to acquire land or obtain environmental clearance, thus leading to significant delays or waning interest amongst developers. In the analysis, I have taken 3 scenarios for the upcoming supply in 12 th five Year plan:
Base Case

India is targeting 100GW capacity addition in the 12 th Five year plan. It also includes the slippage of 28GW from the 11th plan. But looking at the trends of the capacity addition, 70% of the target addition 70GW looks to be a realistic figure. So, I have taken 70GW as the base case supply for 12th plan. It also includes 12GW of hydro capacity addition, 40% of the announced 30GW addition for 12th plan.
Conservative Case

For the conservative case, I have taken 60GW capacity addition in the 12 th plan. Even in the 11th plan, capacity addition is not going to cross 50GW.
Aggressive Case

Capacity addition of 80GW has been taken as an aggressive case supply scenario. It is around 40% of the shelf projects and includes 20GW of the announced 30GW of hydro capacity.

Demand Side
While factors like income and lifestyle differences do contribute to the penetration of consumer durables, the most dominant factor was lack of regular electricity supply in the rural areas. This supports the view that there is a lot of latent demand for power in the country which is not captured in the official figures. However, an interesting aspect of more supply of electricity resulting in higher demand elasticity will prompt the need for greater generation of power. In this aspect, the example of China is an interesting case. Chinas elasticity of power demand with GDP was 1.1 in 2001. With increase in power generation the elasticity also went up from 1.1 to 1.6 - as the power was made available people consumed it. With 45% of the Indian household still un-electrified there is a huge amount of latent demand for power. Indias average GDP growth rate in last five years has been 7.6% while the growth in power demand over the same period is only 5.8%. Lower elasticity of power demand with the GDP growth in India has been due to higher contribution of services to the GDP, several manufacturing units setting up their captive units and limited growth in generation itself. However, with the capacity additions currently going on and those planned for the 12th plan, the elasticity of power demand should go up as is evident from the Chinese experience. To add to the above discussion, even according to McKinsey Report, India's peak demand is going to see an upward spiraling trend beyond the normal forecasting figures due to the following reasons: India is going to witness faster manufacturing growth around 14% - 15% in the coming years After all the 1,25,000 villages would get electrified, we would see spike in the demand than the expected figures because of their latent demand India's domestic consumption is expected to grow at 14% for the next 7-10 years We will also have to take into account latent demand due to load-shedding

Therefore, while giving the final forecast, I have increased the regression generated forecasted figures by 10% (Base Case) to accommodate the supposed increase due to latent demand and other earlier discussed reasons.

Demand Deficit
Targets set in the planned power generation capacity were not achieved in the 11th Plan. The Planning Commission has acknowledged that the actual realisation in the Eleventh Plan may not exceed 50 GW. The shortfall in achieving the targets has been primarily due to poor project implementation, inadequate domestic manufacturing capacity, shortage of power

equipment, and slowdown due to lack of fuel, particularly coal. Domestic coal production is expected to fall short of expectations. The peak load demand is estimated at 222GW by FY17. This is a compounded annual growth rate of 10%. For the year ended March 2011, the demand was 860 billion units. The total installed capacity required is expected to rise to 300GW by the end of March 2017. But actual installation would probably fall short of the requirement by 10% - 18%. (Exhibit)

Exhibit: Installed Capacity (2016-17)

18%
53,440

14%
42,440

9.6%
28,440

296,066 242,626

253,626

267,626

Installed Capacity Required

Installed Capacity (Conservative) Peak

Installed Capacity (Base-Case) Deficit

Installed Capacity (Agressive)

Source: CEA, Analysis

In the Exhibit below, we can see Indias base and peak load supply-demand scenario for the year 2010 2011. Exhibit: Base and Peak Load Supply Demand (2010-11)
250,000 200,000 150,000 100,000 50,000 0 Supply 2010-11 Base
Source: CEA, Analysis
27 GW 85 GW 50 GW 75 GW

Demand

Peak

After putting base, aggressive and conservative case supply and demand figures, we observe that Indias peak load deficit is going to increase over the year. Peak load deficit is expected to reach 17% - 18% by FY17. (Exhibit)

Exhibit: Base and Peak Load Supply Demand (2016-17) Base Case
250,000 200,000 150,000 100,000 50,000 0 Supply 2016-17 Base Peak Demand
182
40 GW 89 GW

222

142 GW 133 GW

Source: CEA, Analysis

Exhibit: Base and Peak Load Supply Demand (2016-17) Conservative Case
250,000 200,000 150,000 100,000 50,000 0 Supply
Source: CEA, Analysis
174 86 GW 38 GW 214

136GW

128 GW

2016-17 Base Peak

Demand

Exhibit: Base and Peak Load Supply Demand (2016-17) Aggressive Case
250,000

232 195
104 GW

200,000
43 GW

150,000 100,000
152 GW 128 GW

50,000 0 Supply Base

Source: CEA, Analysis

2016-17 Peak

Demand

If we analyze the shortfall in generation in 2010-11 vis--Vis the target, we see following main reasons: Loss of generation due to delay in commissioning / stabilizing of new units Loss of generation due to backing down of units due to low schedule from beneficiary states during the year 2010-11 Generation in some of the thermal power plants was restricted on account of shortage of coal, inferior quality of coal During the months of May, June, July & August, some of the power plants in the western region were kept closed on account of acute shortage of water in these areas due to deficient rainfalls received in the catchment area during the year 200809 and 2009-10. After arrival of good monsoon in the country, there was sudden drop in agriculture and domestic loads resulting in lower monthly growth rate.

Exhibit: Reasons of loss of generation v/s Target April-July 2011

Shortage of fuel 13% Delays in commissioning 24%

Load Demand Schedule 32%

Forced Outages 31% Source: CEA