Covid has not only curtailed the country’s electricity consumption but also derailed development of green projects that were scheduled to come online.
Data provided by the Ministry of Power indicates that capacity addition in renewable sources of energy dropped to 7.4 Giga Watt (GW) in FY ’21, the lowest in five years.
Although capacity addition in renewables was higher than the growth recorded in the remaining power sources, India’s overall capacity addition decreased 22% y-o-y to 12.84 GW in FY ’21 compared to 16.45 GW in FY ’20, weighed down by Covid.
Solar has been driving the new capacity through 5.5 GW of new plants added during the fiscal. However, its development has come under additional pressure due to reluctance from some distribution companies on signing power purchase agreements post-auctions in anticipation of a further drop in tariffs in future bids.
Impact on coal-fired generation
Notwithstanding the sluggish development, electricity generation from renewables continues to rise steadily by registering an increase of 5% y-o-y to 145.74 billion units (BU) in FY ’21.
On the other hand, share of coal in the energy mix further receded in a dull market, which dropped to 68.9% in FY ’21 against 69.2% in FY ’20. Besides, coal-fired power generation fell for the second straight year to 950.75 BU during FY ’21.
Outlook
A market study carried out by Fitch Ratings reveals that the country’s electricity demand is expected to rise by around 6% in FY ’22, as the lockdown during the recent pandemic resurgence is less restrictive and more localised than in 2020.
It was further highlighted that increase in demand is likely to result in higher thermal power plant load factors (PLF), aided by the demand revival and slower capacity additions.
In an encouraging start to the new fiscal, performance of the power sector has improved over the previous fiscal, but remains lower than the levels attained in the pre-Covid period.
Overall, power supply has decreased 2% to 340.24 BU in the first quarter of FY ’22 compared to 348.12 BU seen in the same quarter in FY ’20 (pre-Covid period). Moreover, PLF of thermal plants has also declined 7% to 58.64% in the first quarter of FY ’22 compared with the pre-Covid levels of 62.84% registered in first quarter of FY ’20.
There remains risk of further downside with an impending surge in Covid cases, but major part of the increased coal demand is expected to be met domestically at a time global prices are soaring.
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