MOSL: UTILITIES-Merchant power price spike – a nine-day wonder-Peak load growing faster than energy demand in recent months

​UTILITIES: Merchant power price spike – a nine-day wonder; Peak load growing faster than energy demand in recent months

• ​Power exchange (IEX) prices have doubled from the average of last two years to more than INR5/kWh in the recent weeks. Interestingly, there is sharper increase in evening peak prices compared to the rest-of-day prices.
  
• The increase is due to a combination of factors - increase in demand, fall in hydro and nuclear generation, increased outages at gas plants, and low coal stocks at power plants.
  
• Demand growth has already moderated in mid-September. Hydro and nuclear generation has relatively improved. Coal-based generation growth has decelerated and plant outage has declined. Improving coal supply will trigger correction in IEX prices, in our view.
  
• Peak demand growth was lagging energy demand growth until August 2016 but has since been outpacing. The trend could accelerate as 'Power for All' pushes domestic electricity consumption, which has an evening bias. 'DEEP' data is also suggesting rise in demand for part-of-day contracts.
  
• If the trend in sharper growth of peak load continues, the demand for hydro and gas plants will increase. Rising share of solar power generation will further drive demand for hydro and gas plants, which can ramp up quickly on demand.