For swathes of consumers in India, the twin scourge of shortages and high prices of power have become something of a distant memory. The marked improvement in fuel availability, the single biggest contributor to the crisis during the United Progressive Alliance years, has resulted in higher capacity creation and generation. The impact of an 11 to 12 per cent rise in generation - the highest in recent years - is evident in the dramatic reduction in the peak deficit to 1.9 per cent in June from 2.9 per cent in the same month last year, and prices on the spot exchange have fallen steadily as a result. From Rs 3.54 per kWh in 2011-12, the day-ahead spot market rate had dropped to Rs 2.16 per kWh in July.
A good monsoon, which brought more hydro-electric power into the grid, improvements in coal linkages via the country's first coal auctions and better availability of cheaper gas have played a part in the brighter power picture for which the power ministry deserves credit. For example, the average coal stock position has increased to 21 days from just seven in 2014. Going forward, Power Minister Piyush Goyal's new linkage policy, announced earlier this year, leaves power plants free to access coal from the nearest and cheapest source and could well give thermal power plants considerable operational flexibility to manage costs.
These are major achievements but the lower demand deficit and prices also conceal possible challenges for the future. For one, they indicate that growth in demand has not been as robust as generation. Over the past three years, the country has added 80 GW of capacity but demand rose by only 33 GW. Anaemic demand is also evident in the amount traded through the spot market; offtake has dropped sharply from 13,799 units in 2011-12 to 3,581 units in July this year. Analysts confirm that demand for June, July and August, months that typically see demand spikes, has been stagnant. This is also evident in the fact that plant load factor (PLF) has hovered at 65 per cent. Though spot trading accounts for just three per cent of the power market, prices here indicate distress sales of sorts by thermal power plants of their surplus power. At half the price they quoted in power-purchase agreements, generators, thus, are mostly covering their variable costs.
Stagnant demand suggests that India's economic growth may not be as robust as the official figures show. Now, with faint signs of recovery emerging, the question is whether the outlook on demand, supply and price will remain so benign. It is possible that with more plans to ease fuel supply links to states, another round of auctions due and the possibility of open access at the household level, the situation may not reach the crisis point of earlier years. The doubts mostly hinge on the impact of UDAY, Mr Goyal's scheme to ease the financial crises of the state electricity boards, the major buyers of power. Success here crucially depends on state governments' willingness to raise prices. Only a sustained economic recovery will reveal whether that is a gamble worth taking.
