India’s energy demand and supply deficit

For the past two decades, India has had to face increasing deficit in power supply, both for meeting its normal energy requirements as well as its peak load demand. The problem is acute during peak hours and summers, and necessitates planned load shedding by many utilities to maintain the grid in a healthy state. The average all-India shortages in 2009-10 were at 10 per cent in terms of normal energy requirement and about 13 per cent in terms of peak load.

Electricity Demand and Supply

FY	Energy				Peak Demand
	(MU)				(MW)
	Demand	Availability	Shortage	%	Demand	Met	Shortage	%
2002-03	545,983	497,890	48,093	8.8	81,492	71,547	9,945	12.2
2003-04	559,264	519,398	39,866	7.1	84,574	75,066	9,508	11.2
2004-05	591,373	548,115	43,258	7.3	87,906	77,652	10,254	11.7
2005-06	631,024	578,511	52,513	8.3	93,214	81,792	11,422	12.3
2006-07	693,057	624,716	68,341	9.9	100,715	86,818	13,897	13.8
2007-08	737,052	664,660	72,392	9.8	108,866	90,793	18,073	16.6
2008-09	777,039	691,038	86,001	11.1	109,809	96,785	13,024	11.9
2009-10	830,594	746,644	83,950	10.1	118,472	102,725	15,747	13.3

Source: CEA

With the shortage at both the normal and the peak levels, Indian power industry does not exhibit much cyclicality. Further, with assured returns, the margins of players and their profitability is almost independent of the economic cycles. Electricity is the most important component of primary energy. India’s electricity consumption has grown at an average rate of 7.3 per cent during the period 2002-07 to about 577.9 TWh. Consumption has increased at a faster rate since 2002-03, reflecting buoyant industrial demand. Industrial consumers are the largest group of electricity consumers, followed by the domestic, agricultural and commercial consumers, in that order. India’s per capita electricity consumption increased from 178 kWh in 1985-86 to 704.4 kWh in 2007-08. Over the period, 2001-08, per capita consumption has increased at an average rate of 4.45 per cent. It is still much lower compared to the international standards.

 

 

Electricity Requirement

The demand for power is expected to increase to 975 billion kWh by 2011-12. However, at an average GDP growth rate of 8 per cent, the overall demand is expected to increase to about 1,097 billion kWh in 2011-12, including the demand from non-utilities.

Projected Requirement of Electricity

Source: IMaCS Research

The 17th Electric Power Survey (EPS) has forecast a peak demand of 152,746 MW for 2010-11. That means a capacity addition requirement of about 72,000 MW during the Eleventh Plan period. Though the target set for capacity addition during the Eleventh Plan period is 78,700 MW, only 62,000 MW is expected to be added by the end of the period.

Capacity Addition Plan

The following table provides the Eleventh Plan targets for adding generation capacity. In a reversal of the trend witnessed during the 1990s, a substantial contribution is expected from the hydropower sector. Also, the private sector is expected to account for 15 GW of the planned capacity addition of 78.7 GW during this period.

Installed Capacity Addition Plan (MW)

                         Source: CEA, IMaCS Research

Recognizing the large potential of coal reserves in the country as an economic and readily available resource, a significant proportion of the future capacity additions is expected to be based on coal. Further, to reduce the environmental impact and to increase efficiency, the strategies proposed by the power ministry include introduction of large-sized units (660-800 MW) employing the super-critical technology. The source-wise capacity addition as envisaged under Eleventh Plan period is as given below:

Additional generation capacity would require commensurate investments in transmission infrastructure as well. Huge transmission capacity enhancement is required under Phase-III of National Grid Programme, which targets an inter-regional exchange capacity of 37,700 MW by 2012. With rapid industrialization and growing power requirements, many states have decided to set up high-capacity intra-state power transmission systems. PPP model is being adopted by many utilities to attract private investment in transmission sector. The future capacity addition plan envisaged is as given in the table below:

Projected Transmission Line Length (Ckm)

 

Source: CEA,IMaCSResearch

Mandate for the Eleventh-Five Year Plan

Considering the continuing gap between the demand and indigenous production of crude oil and natural gas and low crude oil reserves, national oil companies and private companies are being encouraged to venture abroad. The various strategic options in this regard include focus on ventures with producing fields for the short term, equity participation as a part of reserves portfolio management, emphasis on exploration acreages for the short to medium term and promoting upstream sector services for the long term.

Planned Petroleum and Natural Gas Demand-Supply

 

Ninth Five-Year Plan (Actual)		Tenth Five-Year Plan (Actual)	Eleventh Five-Year Plan (P)
Terminal year demand of petroleum products (Million tonnes)	100.43	119.85	141.79
Reserve accretion (MTOE)	795.13	1,652.92	2,129.44
Crude oil production (Million tonnes)	162.99	166.56	206.76
Natural gas production (bcm)	140.92	158.86	287.31
Net Imports –Terminal Year
Crude oil		-	111.50
Petroleum products		-	-15.77
Refining capacity (Million tonnes)	118.37	148.97	240.96

Source: Planning Commission; P-Projected

At the beginning of the Eleventh Five-Year Plan period (2007-2012), the Planning Commission had projected a demand for gas of 279.43 million metric standard cubic meters per day (mmscmd) in the terminal year of the period, compared to 179.17 mmscmd in the first year of the Plan. The corresponding projection for increase in gas production was 63.23 bcm compared to 33.78 bcm.

Gas Production –Eleventh Five-Year Plan Projection (bcm)

Source: Planning Commission

The projected demand for natural gas is the highest for the power sector, followed by the fertiliser, petrochemicals, city gas distribution and sponge iron and steel units. Any surplus gas after allocation to these industries would be available for sale to other units.

 

 

 

 

 

Projected Natural Gas Demand –Eleventh Plan Period (mmscmd)

 

generation79.7091.20102.70114.20126.57Fertiliser41.0242.8955.9076.2676.26Citygas12.0812.9313.8314.8015.83Industrial15.0016.0517.1718.3819.66Petrochemicals25.3727.1529.0531.0833.25Others*6.006.426.877.357.86Total179.17196.64225.52262.07279.43

Source: Report of the Working Group on Petroleum & Natural Gas Sector for the Eleventh Plan

Since the demand-supply projections for gas leave a significant unmet demand of 38.22 bcm, it is evident that gas imports would increase. According to Planning Commission estimates, by the end of 2011-12, India would import about 23.75 million tones of LNG. That could still leave an unmet demand of about 10-11 bcm.

LNG Supply –Eleventh Five-Year Plan Projection (Million tonnesper annum)

 

Source: Planning Commission

While the demand for crude oil has been projected by the Planning Commission to be around 207 million tonnesin 2011-12, the projected domestic oil production in that year is only 39-40 million tonnes. Going by the current trends in demand for oil and domestic production, the unmet demand could be higher than projected.

 

Crude Oil Production –Eleventh Five-Year Plan Projections (Million tonnes)

 

Source: Planning Commission