May 2015: Who Killed Power Demand?

Lydia Powell and Akhilesh Sati, Observer Research Foundation 

One of the perverse energy messages coming out in May 2015 is that there are no takers for electricity in what is generally believed to be an electricity starved country. The trend has been in the making for some time now but when the Minister for Power and Renewable Energy Shri Piyush Goyal remarked in the lower house of the Parliament that there was surplus power at the national grid monitoring station indicating that power was available at ‘zero rupee per unit’ (Rs 0 a KWh) it must have shocked even the uninitiated. This meant that there are no takers for power even when it is free. The Minister urged utilities to buy power from exchanges and then went on to advise states to invest in more power supply through solar and gas based power plants. He probably did not realise that he was actually contradicting himself.  If utilities which are the largest buyers of power do not want to buy power then who will want to invest in what is seen as expensive power?

Data from the Indian Energy Exchange which is the largest among many power traders shows that the sell bids outnumbered buy bids by a significant margin on most days. In April there were buy bids for 2.9 billion units against sell bids for 4.9 billion units. The average market clearing price was Rs 2.68/KWh which is low compared to average price of electricity available through long term contracts. The most puzzling story came out during the last week of May which said that 57 base-load thermal power plants with total capacity of over 8000 MW in the northern and western regions were facing ‘reserve shut-down’. In other words these plants were being asked to back off capacity on account of lack of demand.  We also saw stories on key investors are walking away from thermal power projects and many observers attributed it to lack of demand growth. What is happening? Who killed demand for power in a power starved country?

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Source: India Energy Exchange

The short answer can be given in two parts:  the first part is the short term effects (1) Industrial slump partly explains lack of demand growth for power (2) The fact that cash strapped utilities are trapped in long term contracts that require at least the capacity charge to be paid even if power is not lifted is another reason why utilities cannot take advantage of lower prices in the spot market (3) The fact that there is no universal service obligation pushes utilities to opt for outages rather than supply. This is something any rational economic actor would do. The longer term questions for which there are no answers are more troubling. Who killed electricity demand in a country with one of the lowest per person electricity consumption in the developing world as well as the largest number of people without access to electricity?

In theory the huge unmet demand for energy in India can absorb primary energy from any source – be it gas from Iran and Turkmenistan, uranium from Kazakhstan, coal from anywhere and solar energy from everywhere that call all be turned into electricity. Apart from millions of un-electrified households that are longing for electricity, there are also urban household and business consumers that are eager to do away with expensive power back up systems. If there is surplus supply at one end and huge unmet demand at the other and we still have a problem then it must be the system in-between that is killing demand.

Both government failure and market failure can be blamed for this demand destruction. The market is not designed to provide electricity to poor un-electrified households with latent demand (which means that demand is not backed by purchasing power) but governments have an obligation to step in to this segment which the market has failed.  But the government (and the utilities owned by the government) have failed to convert this huge latent demand for energy and electricity into a source of productive power and eventually market demand. In the urban and industrialised segment where demand is backed by purchasing power, the market has responded but perversely through diesel based generators (and countless number of small generators of less than 100 KvA along with millions of invertors) which is a perverse outcome in a country that can ill afford expensive power. Once again the market has failed to lead to the efficient fuel choice because the government has failed to provide an efficient market for fuels. Demand destruction in a country that is energy poor is a tragedy and it cannot be addressed if we limit our solutions to the unforgiving and predatory economic environment that we are forced to operate in. The situation in the electricity segment is not very different from that of the food grain segment which has grain surplus at one end and widespread malnutrition and starvation at the other. It is also not very different from the housing segment where large areas of unused land (and buildings) exist at one end and crowded and tiny homes in wretched slums at the other end.  Simplistic answers to this complex problem must be resisted at all costs.  We are all to blame – not just the utilities!

On the coal front the news coming out in May has been distressing as many outcomes of the supposedly successful coal auctions are moving into the courts. Guide posts are being changed mid course and auction participants are left with no choice but to seek judicial intervention. The bench hearing the case on Gare Palma coal mines has rightly remarked that ‘this is not the way a government should function’.

On the gas front the most important news in May was the revival of stranded gas based power projects through reverse bidding (bidder of lowest subsidy gets the gas) but this was accompanied by the news that there were few takers for gas based power even after the subsidy. This month the government also declared that it may allow market price for gas from complex fields but we don’t know yet which market the government is talking about. There is no market for gas or for that matter any fuel in India. We also saw news on GAIL’s talks with Shell to sell US LNG which once again raises questions over the prospects for LNG as a source for power generation. On LNG there was also news on preliminary agreements with France and South Korea on manufacturing LNG carriers in India. One cannot blame the government for its optimism over the demand for LNG carriers and LNG at a time when demand for everything is falling. The government has to be optimistic if it wants to stay in business.

On the oil front we saw an increase in the price of Indian crude basket (by Rs 2.29/Litre) which resulted in increase in prices of both petrol (by Rs 3.13/Litre) and diesel (Rs 2.71/Litre). The fall in the value of the rupee is one reason why there was a somewhat disproportionate increase in the case of petrol.

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Source: PPAC & IOC

There was some conflicting news on the Jaitapur nuclear plant with gram sabha of Jaitapur passing a resolution against the nuclear power plant and a member of the Maharashtra ministry declaring that the Jaitapur plant will be completed. If we go by the precedent set in Kudankulam, we can be assured that protests against Jaitapur will be crushed using disproportionate force (physical and judicial) and the project will progress, provided the government wants it to succeed.

On the solar front many projects were announced by private players. Even coal companies such as Adani are throwing their hat in. This could indicate a gravy train on the move. Though it is too early to judge the success of these projects, concerned ministers were enthusiastically making announcements on cumulative solar GWs that have been committed. Government push will probably stop only after the count touches 100 GW.

May also had some interesting sound bites on climate negotiations. As negotiations on carbon mitigation in Paris draw near, concerned ministers were once again saying that India will have the cake and eat it too. The cake is a seat on the rich country table. The ticket for this table has already been purchased with stratospheric targets for renewable energy. The eating is in the joy of blaming rich countries for global warming. All concerned ministers are doing this with a committed sense of duty.

Views are those of the authors                    

Authors can be contacted at,

Courtesy: Energy News Monitor | Volume XI; Issue 50



Lack of clarity spells doom for UMPP projects

Ashish Gupta, Observer Research Foundation

The Ultra Mega Power Projects (UMPPs) which were seen as major achievement for the power sector are now losing momentum. Initially, nine UMPPs were to be taken up and later on seven more mega projects were added to the list. These ultra mega projects were awarded to reduce the power shortage in the country but only two are in operation stage. Leaving aside those two, all the others are stalled due to various reasons. There is still no clarity whether these projects will ever come online in future. The viability of these projects was always questioned in the past and the recent case of Mundra, Sasan and Tilaiya have proved that the fears were justified. In the case of Mundra, it got temporary relief by way of tariff hike but Sasan’s future looks bleak as the government is in the process of de-allocating Chhatrasal coal block. Tailaya has got a complete setback as  the company concerned has backed out from the project. Though the reason cited was the inordinate delays in land acquisition the reality is pointing towards the economics of the project. The present status of the UMPP’s is given below:

UMPP Name Developer Name Date of Transfer Incorporation of SPV Present Status Remarks
Mundra, Gujarat Tata Power 23/04/07 NA Working Efficiently Tariff hiked recently
Sasan, Madhya Pradesh Reliance Power Ltd 07/08/07 NA One Unit (660 MW) synchronised so far If the associated coal block cancelled, the plant will become unviable
Krishnapatnam, Andhra Pradesh Reliance Power Ltd 29/01/08 NA Expected to come online at the end of 12th Five Year Doubtful after change in Indonesia coal policy
Tilaiya, Jharkhand Reliance Power Ltd 07/08/09 NA Expected to come online in 13th Five Year plan Reliance backed out from the project
Chhattisgarh Chhattisgarh Suguja Power Ltd Not Finalised 10/02/06 RFQ withdrawn on 15/03/10 as the captive coal blocks were in inviolate areas. The RFQ dates keeps extending Doubtful after the recent coal blocks cancellation
Karnataka Coastal Karnatak Power Ltd Not Finalised 10/02/06 Site has not been finalised yet Doubtful after change in Indonesia coal policy
Maharashtra Maharashtra Mega Power ltd Not Finalised 01/03/06 Site has not been finalised yet Doubtful after change in Indonesia coal policy
Odisha Orissa Integrated Power Ltd Not Finalised 24/08/06 RFQ bids opened in August 2011. After that no information available Pithead plant. If it comes online will save on transportation cost and CO2 emissions
Tamil Nadu Coastal Tamil Nadu Power Ltd Not Finalised 09/01/07 Initial notification for land acquisition was issued and compensation was finalised Doubtful after change in Indonesia coal policy
Ghograpalli, Odisha Ghograpalli Integrated Power Ltd Not Finalised 09/02/10 Site has not been finalised yet Pithead plant. If it comes online will save on transportation cost and CO2 emissions
Tatiya, Andhra Pradesh Tatiya Andhra Mega Power Ltd Not Finalised 17/04/09 Site has been finalised but land was not given by the government Doubtful
Sakhigopal, Odisha Sakhigopal Integrated Power Ltd Not Finalised 09/02/10 Site has not been finalised yet Doubtful as no progress has been made with regard to site finalisation
Gujarat 2nd UMPP No Information Not Finalised No SPV formed Site has not been finalised yet Doubtful as no progress has been made with regard to site finalisation and changed Indonesia coal policy
Jharkhand 2nd UMPP No Information Not Finalised No SPV formed Site has not been finalised yet Doubtful as no progress has been made with regard to site finalisation
Tamil Nadu 2nd UMPP No Information Not Finalised No SPV formed Site has not been finalised yet Doubtful as no progress has been made with regard to site finalisation
Andhra Pradesh 3rd UMPP No Information Not Finalised No SPV formed   Ministry of Power already shelved this project


One can observe from the chart above that many of these projects are pithead projects but still no progress has been achieved. Power from these projects will be procured through levellised long term tariff based bidding where the tariff has to be quoted after taking into account the cost of mining. Now with the coal auction process with ever changing rules the power developers are finding it difficult to quote feasible tariff and the best option for them is to back out from the project.

Apart from that the government decision to cancel one company’s coal block while allowing others to go ahead is raising questions over the fairness in government process. Dual approach towards companies will develop a sense of mistrust among the power developers as they will always be worried whether their coal blocks will be cancelled in the future on the basis of cartelisation. Though the fate of the government persuasion of cancelling coal blocks will be decided by the court what is certain is that all these mega projects may either be shelved or become negotiating ground for companies.

Views are those of the author                  

Author can be contacted at

Courtesy: Energy News Monitor | Volume XI; Issue 48