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MOSL: UTILITIES-Modest power demand rise, yet merchant rates spike!

Utilities: Modest power demand rise, yet merchant rates spike! Analysis highlights many issues—needs out-of-the-box thinking

 

Although, overall electricity demand growth is modest (5-6%), and plant load factor (PLF) of coal-based power plants remains low, prices in the merchant power market have shot through the roof recently. 

 Analysis of data highlights many issues

• Domestic coal supply to power plants has grown in double-digits (11%) since July 2017 – a point when power plants started demanding more coal after consciously (perhaps wrongly) depleting their stocks.
• Coal stocks at power plants still continue to remain low because of declining imports and apparent increase in specific consumption by power plants. In light of rising coal prices and depreciating INR, it is understandable that coal imports would decline. But, the rising specific consumption of coal is a surprise trend reversal after many years of continuous improvement. This can be attributed to decline in coal quality, and to the deterioration in performance of power plants on increased volatility in generation, led by rising share of renewable energy or increased pilferage.
• Since July 2017, coal-based power generation has increased by a modest 5%, but higher than conventional power generation growth of 4%. It is not the demand but the bottlenecks in supply chain that have starved a few states of coal and forced them to buy power at high rates in the merchant power market; though, their own plants still operate at low PLF. We understand that Bombay-Howrah line is a key bottleneck, which carries coal from MCL and SECL to north and west of India and accounts for nearly 30% of the domestic coal supply in the country. This may take few more years before additional lines get commissioned and ease the congestion.
• In normal course, states would have resorted to load shedding yet they are buying expensive power in the merchant market, perhaps due to upcoming elections.