Untitled Document

India's Energy Sector


Power is one of the core inputs for any industry. Over the last 36 years, electricity consumption grew at a CAGR of 6.7% in the country but there was a shift in sectoral power consumption patterns. Moreover, the mismatch between the increasing demand for power and the inadequate supply caused huge power shortages across the country.

Characteristics of Demand

Demand for Electricity Traces Trend in GDP Growth

Overall economic growth determines the extent of electricity demanded because of the all-pervasive use of electricity. Generally, the demand for electricity traces the GDP growth trend; for instance, economic growth and the associated increase in economic activities, particularly in industries like cement, steel, mining, food processing and many other manufacturing industries, increases the demand for electricity.

Variation in Demand

Power requirement varies among consumers in terms of voltage and phases; for instance, in industries, electricity is required in three different types: three-phase small-scale 400V; three-phase large-scale 11 KV, and three-phase very large-scale 33 KV. Domestic consumers, on the other hand, require 230 V single-phase or 400 V three-phase to use it forlighting, air-conditioning, water heating, cooking, etc. Agricultural consumers use 230 V single-phase and 400 V threephase for running tube wells and pump sets. Commercial consumers use 230 V single-phase and 400 V three-phase for using equipment and appliances. The Railways get supply through 11 KV and 33 KV whereas public services, which include public lighting and public water, get supply at different voltages, including 230 V.

Seasonality in Demand

Demand for electricity also varies according to seasons. Demand from the domestic sector generally peaks during summer and subsides during monsoon. Indiaís seasonality in demand can be captured in power-deficit numbers as it is a powerdeficit country. Generally, the power deficit in India ranges between 6-8% during monsoon (July to September), and climbs up to around 10-14% during winter and summer. During monsoon, the demand for power from the agriculture and domestic/residential sector is lower, while during the summer and winter, demand from the domestic/residential sector is higher as power demand is higher for cooling and heating purposes.

Consumption Pattern/Consumer Profile

Electricity is consumed by almost every sector in its day-to-day functioning but on the basis of end-use, consumers of electricity can be categorised into the following seven categories:

Industrial consumers are the largest consumers of electricity in India. In FY07, industrial consumers accounted for 38% of the total electricity sold by utilities; however, their share in actual consumption was much higher as many industries met their power requirement through captive generation. Domestic and agriculture sectors are the other major consumers who have respective shares of 24% and 22% in total power consumption. While the public services account for 4% of sales, the Railways and other consumers account for a share of 2% each in overall sales.

Over the years there has been a significant shift in the sector-wise consumption patterns, as there has been a decrease in the share of agriculture and industrial sectors and an increase in the share of the domestic and commercial sectors. In FY90, the industrial consumers accounted for 46.0% of total sales by utilities, while the domestic and agriculture sectors accounted for 16.9% and 25.1%, respectively. The industrial segmentís share in overall consumption has come down due to improved consumption norms after adoption of energy-efficient technologies, and also due to the industrial sectorís use of captive power. The domestic segment has overtaken the agriculture sector and has emerged as the second-largest consumer segment of power largely due to increased urbanisation, rise in disposable incomes, and the consequent increase in use of domestic electrical appliances. Consumption of power by commercial establishments has increased with the rise in the service sector in India.

Industrial Consumers

Industrial consumers, the largest consumer segment of electricity, are bulk consumers and electricity is supplied to these consumers through three-phase small-scale 400 V, three-phase large-scale 11 KV and three phase very large scale 33 KV.

Depending on the type of power consumed, industrial consumers can be further sub-divided into:

High-tension industries account for almost 79% of the total power consumed by industries, while the low and medium tension industries account for the balance.

Cross subsidies, higher tariff, power outages, and inconsistent quality of power supplied by utilities had adversely affected power availability of industries. The power shortages and the favourable policies for captive power made many hightension industrial consumers opt for captive power generation. Likewise, many energy-intensive industries like iron and steel, aluminium, cement, sugar, fertilisers, paper, and chemicals set up their own captive power plants.

Domestic Consumers

The domestic consumers constitute the second-largest user segment of power. Electricity is primarily used in this sector for lighting and in domestic appliances like refrigerators, air-conditioners, water-heaters, kitchen appliances, and consumer durables like television, music system, etc. Higher degree of urbanisation and rural electrification has increased the domestic sectorís access to electricity and therefore, its consumption of electricity. Higher disposable income and better access to finance for purchasing consumer durables have increased the usage of kitchen appliances and home electronics. Increase in the purchasing power of consumers has also fostered lifestyle changes in the Indian household, and has in turn, increased its electricity consumption.

The domestic power consumption grew at a CAGR of 9.76% from 3.9 bn kWh in FY71 to 111 bn kWh in FY07. Going forward, the rise in household income is likely to continue to drive the demand for power across consumer classes in India. The electricity demand of household sectors in the urban areas will increase in the future with increasing urbanisation and changing lifestyle due to rise in disposable incomes. Similarly, better access to electricity in rural areas mainly due to the rural electrification programme will increase the domestic sectorís electricity consumption in these rural areas.

Scheduled power cuts and load shedding has curtailed the domestic consumption of electricity and has forced large residential complexes to opt for diesel-generated energy to meet their power requirements. However, in future, such consumers will also be added to the overall consumer pool, when the availability of power increases, which will increase the domestic power consumption.

Agricultural Consumers

Agriculture sector is the third-largest consumer of power in India; in FY07, it accounted for 22% of the total power consumption. Its share in total consumption was almost half in the early seventies. The governmentís emphasis on rural electrification and subsidised tariff structure for the agriculture sector has increased power consumption of this sector. Electricity is largely consumed by this sector for irrigation purposes, and for operation of electrical pump sets.

The agriculture sectorís electricity consumption grew at a CAGR of 9% to 99 bn kWh in FY07. Agricultural subsidies and government initiatives for rural development, which included programmes like free electricity to farmers, emphasis on irrigation through pump sets, contributed to the higher power consumption.

Commercial Consumers

During FY07, the commercial sector accounted for around 9% of total electricity consumption. During FY71 to FY07, the commercial sectorís electricity consumption grew at a CAGR of 7.9% to 40.2 bn kWh. The power consumption in the sector increased due to the rapid growth in the service sector in recent times, the development of recreation and entertainment complexes, and the improvement in healthcare facilities.

Demand Drivers for Electricity

The driving forces for demand of power are all those factors that influence the demand profile over the course of the year and over the course of the day or week. As almost all industries use electricity in their day-to-day functioning, the overall economic growth is a key determinant of electricity demand. Demand for electricity generally traces the trend in GDP growth. The growth in GDP helps to track the growth in economic activity due to increased industrial activity, income from services sector and increased consumption by the household segment and the agriculture sector.

The major factors that Drive the Demand for Electricity are as follows:

Region-wise Consumption Pattern

The consumption pattern discussed above was for the all-India level. However, the sector-wise consumption patterns differs at the regional level depending on the overall level of development in the concerned region. The industrial sector is the largest consumer segment in all regions, barring the North-Eastern region, where the domestic sector is the largest consumer. The industrial sectorís share in overall power consumption is highest at 53% in the eastern region followed by the Western region, where the industrial sector has a 44% share in total electricity consumption. The industrial sectorís power consumption is higher in the East and West because of the presence of large industries (steel) in the eastern region and in Gujarat and Maharashtra (Western region).

In the Northern region, the domestic sector and the industrial sectors, each have a 29% share in total electricity consumption. Within the region, the largely-populated Uttar Pradesh, drives the domestic consumption whereas states like Delhi drive the commercial demand. Delhiís commercial consumption was the highest in the region at around 4.6 bn kWh.

The share of the agriculture sector is the highest in the Southern regionís total consumption, especially in Andhra Pradesh, and the main drivers of agriculture consumption are the subsidies and free electricity to farmers.

Demand and Supply Scenario

Power shortage continues to be a major cause for concern. The overall energy deficit was 11.0% in FY09, while the peak-hour power deficit touched 12.0% during FY09. During FY07 to FY09, the energy requirement increased from 693.1 BU to 774.3 BU while the energy availability increased from 624.7 BU to 689.0 BU. As a result, energy deficit increased from 68.3 BU kWh to 85.3 BU during the period under review. The deficit is largely due to T&D losses, poor transmission, and distribution infrastructure, unaccountability in metering and billing, cross subsidies, etc.

The peak demand for electricity increased from 100.7 GW in FY07 to 109.8 GW in FY09 while the peak demand met increased from 87.1 GW in FY07 to 96.7 GW in FY09. The peak shortage was mainly due to unavailability of plants and load shedding during peak hours.

Region-wise Power Demand and Supply Position

Northern Region

The Northern region has an energy deficit of around 24.3 BU and a peak deficit of around 3.5 GW. The situation varies throughout the year and the worst situation is seen in the summer. Uttar Pradesh is the largest deficit state in the Northern region, and a large part of this deficit can be attributed to the lack of political will and the demographic profile of the consumers. Uttar Pradesh has the highest AT&C losses among all states of the Northern region, which explains the financial sickness of the state electricity boards. A similar situation exists in Punjab and many other states of the region but the intensity in these states is a tad lower whereas in J&K the turmoil has made the situation more critical. Delhi, Rajasthan, and Haryana have largely benefited from the reform process of their respective state governments; as a result, these statesí losses have also come down, and the power deficit has decreased over the years. The region has states like Himachal Pradesh and Uttarakhand, which have enormous hydro potential, and can be tapped to meet the regionís demand for power.

Western region

The Western region faces the worst shortage in both percentage terms as well as in units. The state with the highest demand in the region is Maharashtra, which houses the financial capital of the country and is home to a large number of industrial units. The region also witnesses high demand from the agricultural sector. The demographic mix of consumers in the state makes the financial viability of the power sector difficult. Different problems plague other states like Gujarat and Madhya Pradesh; Gujarat has a lack of generating capacity and Madhya Pradesh faces AT&C losses as high as 50%. However, there is a potential for change, and therefore, investment in Madhya Pradesh state, though availability of fuel remains a problem. Maharashtra is getting an UMPP at a coastal location so that it has easy access to imported coal. Rural electrification in Madhya Pradesh and huge capacity expansion and addition plans in Gujarat also make it an attractive investment opportunity.

Eastern region

In the Eastern region, the growth of installed capacity has been around 1.5% in the past 5 years; however, industrial development and consumer demand have been gradually increasing in the region. The region imports power from Bhutan to meet its power requirement. There are many projects proposed in the area, which are expected to increase the demand for power. The capacity expansion plans by various industries in the sector as well as regular growth in demand translates into a healthy potential for investment. However, there are concerns that need to be addressed at first, the least of which are monetary in nature. Besides, the area has had problems in acquiring environmental clearances for its ambitious capacity expansion plans as well.

North-Eastern region

The North-Eastern region has huge potential in terms of fuel availability (coal for thermal and water systems for hydro power), as well as potential demand, as the region has the lowest per capita power consumption. The major reasons for this are the terrain and climatic conditions that are not suitable for power projects. The region also has abundant supply of gas that is as good as fuel for thermal power generation as is coal, and is cleaner too. In terms of potential, the region is very attractive. It has proven reserves of fuel, it has potential for growth in demand from residential and small users; however, the demand and potential need to be assessed by keeping the geographical constraints in mind.

Southern region

In the past many reforms have been undertaken in this region, such as the implementation of SERCs (State Electricity Regulatory Commissions) and the rationalisation of tariff structures, which have made capacity addition an easier task. The results of these reforms are visible from the peak load deficit (that has come down) as well as the requirement and availability in the region. However, the demand in the Southern region has been increasing as both Karnataka and Andhra are adding huge capacities. Tamil Nadu too has signed MOUs with the Indian government for various projects to increase the transmission and distribution capacities. The demand from both industrial units as well as residential consumers is driving the capacity addition potential in this region. Moreover, the real estate expansion plans in the region will not only require an increase in the generation capacity but also in the capacity to provide continuous supply of power at a reasonable voltage, which makes the opportunity to invest in the region more attractive.


In the domestic sector, the overall slowdown could affect the incremental demand for power from the urban domestic sector, as consumers are likely to postpone their consumer electronics purchases. Demand from the rural sector is expected to rise following waiver of farm loans, modest agricultural income in FY09, and access to electricity for more villages under the governmentís rural electrification programmes. Growth in the industrial sector remained subdued in the first half of FY10. As the Indian economy is expected to revive in the second half of FY10, industrial activity will also see an improvement. The service sector, on the other hand, is expected to see healthy growth, which will keep the demand for power robust. Railways, public services are expected to report higher demand for power, while in the commercial sector, entertainment complexes and the hospitality sector are likely to report marginal decline in demand for power.