Rising temperatures bring relief for electricity producers
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Rising temperatures should bring respite for electricity producers. Temperatures are moving up and reports point to above-normal mercury levels in the next two months. That could improve electricity demand, mostly met by thermal power companies such as NTPC Ltd, Reliance Power Ltd, CESC Ltd and JSW Energy Ltd.
Signs of improvement are emerging. In the week to 18 February, electricity generation grew 4.2%, data from the Central Electricity Authority show. This may not look much of a change from the 3-3.5% rise in the earlier part of the month and in January. But the growth is coming on a high base. Generation in February 2016 was up 9.6%, one of the best monthly readings in the previous calendar year.
Also pointing to the improving demand prospects are rising tariffs in the electricity market. Average market clearing price in the day-ahead market on the Indian Energy Exchange is up 12.8% so far this month (1 to 24 February). This had dropped in the previous two years.
The rebound in fuel (coal) prices and demand related to state elections may have perked up volumes and spot electricity prices. But if temperatures remain high, demand can gain traction. Of course, higher temperatures can only drive domestic and commercial demand which together consume less than 40% of the electricity generated in the country. The industrial sector, which is the single largest consumer of electricity, is not growing.
But as a recent report from The Energy and Resources Institute, or TERI, points out, the residential segment is seeing steady expansion in the overall share of electricity consumption. Another segment which can see greater power off-take is agriculture.
The winter crop sowing, mostly river-fed, is delayed in the south and several parts of the country. Reservoir levels in the southern and northern parts of the country are running below their long-term averages.
If temperatures rise and water scarcity increases, then electricity demand from pump sets (used for groundwater withdrawal) can rise, as had happened in the previous year.
The situation is not as bad as the previous year and the readings till now only reflect a moderate growth in demand.
If the current trends hold ground, then electricity producers can start the new fiscal year (2017-18) on a good note, though a sustainable demand recovery still remains key for their long term fortunes.