POWER SECTOR 2024 – YEAR END REVIEW

POWER SECTOR 2024 – YEAR END REVIEW

WHAT’S IN THE NEWS?


Key Highlights and Challenges

Record Peak Demand and Capacity Expansion

  • In 2024, India achieved an all-time high in peak power demand, touching 250 GW, marking a significant milestone in the country’s energy sector.
  • Over the last 12 months, approximately 30 GW of new installed capacity was added, of which 75% came from renewable energy (RE) sources, reinforcing India’s commitment to a greener energy mix.
  • Notably, the peak demand in May 2024 occurred during Q1FY25 instead of Q2, a phenomenon that has occurred only three times since FY07, according to SBI CAPS.

 

Increasing Demand and Infrastructure Strain

  • Rising temperatures and extended heatwaves have led to a significant increase in power demand, primarily due to the growing use of air conditioning systems.
  • This trend is putting additional pressure on India’s transmission grids, requiring urgent upgrades to ensure reliability and resilience.
  • The International Energy Agency (IEA) forecasts India’s power demand to grow at an average annual rate of 4% until 2050, driven by rapid urbanization, industrial expansion, and increasing energy needs.

 

Reforms in Distribution Companies (Discoms)

  • A series of reforms have been introduced to strengthen India’s Discom ecosystem, which plays a pivotal role in ensuring a robust power sector.
  • Initiatives under the Revamped Distribution Sector Scheme (RDSS), prudential lending norms, and corporate governance guidelines are beginning to show results.
  • Improvements are reflected in a narrowed ACS-ARR gap (difference between cost of power supply and revenue realization) and reduced AT&C losses (Aggregate Technical and Commercial losses).
  • However, Discoms continue to face challenges with their outstanding debt reaching ₹7.14 lakh crore as of March 2023, a figure expected to rise further in 2024.

 

Policy Push for Sector Revival

  • The Government of India has emphasized that the future of the power sector is heavily reliant on a financially and operationally vibrant Discom ecosystem.
  • Key policy measures include:
    • Accelerating the installation of smart meters to improve billing efficiency and reduce losses.
    • Exploring the listing of State power utilities to improve accountability and attract investments.
    • Encouraging private sector participation in Discom operations to bring efficiency and innovation.
  • Debt sustainability remains a pressing issue, requiring Discoms to bridge their financial gaps while maintaining reliable operations.

 

Transmission Infrastructure Development

  • Between April 2022 and March 2027, the government aims to add 1,14,687 circuit kilometers (ckm) of transmission lines and 776 GVA substations to improve grid capacity.
  • As of October 2024, only 28% of transmission lines and 20% of substations have been commissioned, indicating the need to accelerate progress.
  • Supply chain constraints in setting up thermal power plants (TPPs) are a bottleneck for India’s grid balancing efforts, particularly in the short term.

 

Thermal Power Plant (TPP) Challenges

  • India has set a target to add 80 GW of TPP capacity by FY32 to meet its baseload power requirements.
  • However, the sector faces significant challenges, including:
    • Limited domestic manufacturing capacity for power equipment, with BHEL as the only major producer.
    • A slowdown in the thermal power sector in recent years, which has disrupted the domestic vendor ecosystem, leading to delays in project execution.
    • These delays could hinder India’s ability to ensure adequate baseload power amidst rising demand.

Renewable Energy Expansion and Global Challenges

  • India is making significant strides in adding renewable energy capacity, yet challenges persist in scaling up RE projects.
  • Volatility in global supply chains, particularly rising costs of materials and equipment for RE projects, poses a critical challenge for 2025.
  • States have shown hesitation in signing Power Purchase Agreements (PPAs) and Power Sale Agreements (PSAs), creating uncertainty for renewable energy developers.
  • On the policy front, there is a focus on fostering international collaboration, enhancing federal support, and setting clear regulations to scale hybrid and storage technologies for renewable energy projects.

 

Key Developments to Monitor in 2025

  • Continued financial and operational improvement of Discoms through RDSS and related reforms.
  • Acceleration in the development of transmission infrastructure, including grid expansion and modernization.
  • Progress in hybrid and storage technologies, which are critical for integrating renewable energy into the grid.
  • Increased adoption of PPAs and PSAs by States to provide stability for renewable energy developers.
  • Addressing supply chain bottlenecks and vendor ecosystem challenges to meet infrastructure and energy goals.

 

Outlook for 2025

  • The Indian power sector is poised for significant growth, underpinned by a strong policy push, infrastructure expansion, and renewable energy initiatives.
  • However, addressing challenges such as Discom debt sustainability, transmission bottlenecks, and global supply chain volatility will be crucial for maintaining the sector’s momentum.
  • A balanced focus on modernizing infrastructure, scaling renewable energy, and ensuring a vibrant Discom ecosystem will define the sector’s trajectory in the coming years.

Source: https://www.thehindubusinessline.com/economy/tackling-discom-debt-monetisation-key-monitorables-for-2025/article69033320.ece