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Home News Power Sector News Dip in power demand to cut capacity addition target

Dip in power demand to cut capacity addition target

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CEAWith the country's electricity demand this fiscal year likely to be a quarter less than projected in 2010, the Union power ministry has scaled down the forecast for 2022 by 17% to 239 gigawatt (GW).

The change would lead to a corresponding downward revision in the target capacity for 2022 (469 GW) and slow down the already languid investment momentum in the sector.

When the projections were made by the ministry's technical arm — the Central Electricity Authority (CEA) — six years ago, the assumption was that the gross domestic product (GDP) would grow at 8-9% in the ensuing decade.

However, with the global economy taking longer to recover and domestic reforms dawdling, the GDP growth in 2011-14 averaged at about 6% only.

The latest electricity demand (as on April 23, 2016) is 145 GW. Assuming a realistic 5% growth, the demand at the end of the current fiscal would be 151 GW, much lower than 199 GW projected by the CEA. "The (revised) projection of electricity demand for the next five years assumes average GDP growth of 8% or slightly above that," a senior power ministry official said.

The new projections have been finalised by the CEA in consultation with state governments. Currently, the country's installed power generation capacity is about 290 GW, but the average plant load factor (PLF) is only just above 60%, as the electricity demand in recent years has grown at a subdued rate.

According to the CEA's methodology, the electricity demand is directly proportional to the GDP growth — every one percentage point growth in the latter is expected to create 90 basis points' rise in demand. These projections are factored in by developers when they make investment decisions.

The downstream investments —in the transmission and distribution sectors — also rely on the CEA estimates.

"The government's demand projections are one of the guiding factors in the investment decisions. However, these are not the sole source of information for investors as most companies have their own sophisticated ways to assess the future power demand," an industry source said. Lower demand could mean that commissioned capacity would run at lower than desirable load factors, as is being witnessed now, the source added.

With the demand projected for 2022 to be nearly 50 GW less than estimated earlier, the industry feels that the plant load factor of the power stations will continue to languish at 60-65%, thus impacting the financial performance of the firms in the sector.

Source- Financial Express


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