China and India Poised to Lead Global Electricity Demand in 2021_ IEA Report

After experiencing its most significant decline in decades, global electricity demand is expected to rebound modestly next year, led by China, India, and other emerging economies, according to a new report by the International Energy Agency (IEA).

The IEA’s ‘Electricity Market Report’ states that the COVID-19 crisis will reduce global electricity demand in 2020 by 2%.

While the world economy recovers in 2021, electricity demand is forecast to grow by around 3%, significantly weaker than the rebound of over 7% in 2010 – the year after the global financial crisis.

Two-thirds of the additional demand in 2021 is expected in the Asia Pacific region. Most of the demand will be from China and India, which are expected to grow by 5.2% (350 TWh) and 3.6% (40 TWh), respectively, compared to 2020.


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China will be the only major economy to see higher electricity demand in 2020. However, its expected growth of around 2% is well below its recent average of 6.5%. Other big electricity consumers, including the United States, India, Europe, Japan, Korea, and Southeast Asia, are all set to experience declines for the year.

Impact of Fossil Fuel on Power Generation

Coal-fired generation is set to fall by around 5%, the largest decrease on record; nuclear power generation by about 4%; and gas-fired electricity generation by 2%. Overall, CO2 emissions from electricity generation are on course to fall by 5% in 2020.

In advanced economies, renewables and nuclear power will continue to shrink the space for fossil fuel generation. Natural gas is likely to be impacted more than coal due to an expected rise in natural gas prices.

In the emerging and developing economies, demand growth is forecast to outpace increases in renewables and nuclear power, leaving some room for coal and gas generation to expand.

The expected net result globally is that coal-fired generation increases by around 3% in 2021, while gas-fired plants increase output by roughly 1%, leading to a 2% rise in CO2 emissions from the power sector 2021.

Impact of Renewable Sources on Power Generation

Electricity generation from renewable energy – such as hydropower, wind, and solar – is forecast to grow by almost 7% in 2020, squeezing conventional power sources.

The growth of renewable power generation is forecast to continue in 2021 with an increase of more than 6%, expanding the share of renewables in the power mix to 29% from 28% in 2020. Nuclear power is set for a growth of 2.5% next year on rebounds in France and Japan and new plants coming online in China and the United Arab Emirates.

According to the IEA’s ‘wholesale electricity market price index,’ which tracks price movements in major advanced economies, 2020 saw an average price decline of 28% this year, after having already fallen by 12% in 2019.

Falling demand, lower fuel prices, and the increase in renewable generation have dragged down wholesale electricity prices in 2020. 

Electricity Demand in India

COVID-19’s impact on the Indian electricity sector and electricity demand has been significant. Weather-corrected electricity demand relative to the same period in 2019 was down 7% initially, once the lockdown started, followed by a 28% reduction by the end of March. Demand began to recover from May-end, reaching 2019 levels by early August and showing year-on-year (YoY) growth into September and October.

The total electricity demand for 2020 is anticipated to be down 2% from last year, with a rebound expected in 2021. Cross-border imports in the financial year 2019-20 were 7 TWh from Bhutan.

Total losses on India’s transmission and distribution networks, including non-technical losses, fell from a high of 33% in 2001 to 21% in 2018. However, the 21% fall is still significantly higher than in other emerging economies such as Brazil at 16% or China at 7% or the world average of 8.5%.

Conventional Energy Sources

In 2020, the conventional generation still dominates India’s capacity mix, with coal and lignite making up 205 GW (55%) and gas representing 25 GW (7%) of 373 GW total capacity.

There is an embedded capacity surplus of around 10% based on the 2020 annual peak demand of 177 GW (as of September 2020), taking into account the non-firm capacity, losses, and outages (60-90 GW).

Numerous new coal-fired power plants are planned in the short term, while a few States, such as Gujarat, have committed to no new coal power plants beyond 2021.

The year 2020 saw around 70% of India’s electricity generated by coal-fired power plants, while renewables, including hydro, played a significant role (23%). The year also saw a 4% fall in conventional generation relative to 2019, mainly driven by a decline in coal-fired generation.

Gas-fired generation rose by 10%, fuelled by a sharp rise in spot LNG imports and prices under $3/MBtu (Mega British thermal units). Meanwhile, gas plant capacity factors remain low.

Renewable Energy Sources

India’s power system is undergoing a transformation towards cleaner electricity, driven by a national-level renewables target of 175 GW by 2022 and a national renewables ambition of 450 GW by 2030.

Renewables (including small hydro, biomass, waste, solar PV, and wind) represent the second-largest source at over 88 GW (24%), followed by large hydro at around 45 GW (12%).

According to the IEA’s latest report on ‘Renewables 2020,’ India would be the largest contributor to the renewable upswing in 2021. India’s annual additions are expected to double in 2021 compared to 2020. Many auctioned projects are expected to become operational in 2021, leading to significant growth.

Meanwhile, the IEA’s ‘World Energy Outlook 2020’ states that solar is likely to be the new king in the world’s electricity market, and India could be a leading market for utility-scale battery storage.

Indian Power Tariffs

End-user industrial electricity prices in India at $99/MWh are significantly higher than residential prices at $69/MWh on a nominal basis due to significant government support to vulnerable household and agricultural users through cross-subsidization from the industry.

High industrial prices drive large numbers of industrial users in India to seek the benefit of open-access contracts, with prices that are on average 20% to 30% lower than utility prices. Electricity affordability is still a significant issue in India in 2020, again highlighted by COVID-19.

Residential prices based on purchasing power parity are very high in international comparison, despite being subsidized and significantly lower than industrial prices.

Power Market

The Indian wholesale power market is the most significant in South Asia and the ASEAN region. India has had competitive power markets since 2008, although only a relatively small share of all electricity is traded through power exchanges.

Over 95% of the electricity traded in 2019 was sold on the India Energy Exchange (IEX), and the remainder on Power Exchange India Limited (PXIL).

COVID-19 and the related fall in demand had a significant impact on electricity wholesale trade. Firstly, wholesale prices in 2020 have been approximately 20-29% lower than the previous year at ₹2.5 (~$0.034)/kWh on average (in the range of ₹2-4(~$0,027-0.054/kWh) in the day-ahead market between March and September.

Secondly, the traded volume has increased over the previous year; this increase stood at around 44% in September 2020 for all market segments.

According to the report, multiple factors have driven the increase in volume: utilities prefer short-term trade instead of business-as-usual three to nine-month contracts in light of unforeseeable demand patterns.

Additionally, utilities offer their surplus volumes due to lower electricity demand for sale on the market. Finally, driven by lower prices, some utilities have replaced their contracted generation with cheaper market purchases.

June 2020 saw India’s real-time power market launch, filling a critical gap by providing real-time corrections (an hour ahead) for intermittent and variable generation such as solar and wind.

The price volatility of the real-time market has been greater than that of the day-ahead market. Still, on average, the report said that the prices are typically lower at ₹2.36(~$0.032)/kWh, and costs show a trend towards convergence with the day-ahead market.

August 2020 marked the launch of the ‘Green Market’ on the IEX, where green electricity is traded at a premium (compared to the regular day-ahead market) at ₹3.4 (~$0046)/kWh within the range of ₹3-3.8 (~$0.041-0.052)/kWh for clients looking to fulfill their renewables purchase obligations (RPO) through market purchases.

In October 2020, the GTAM recorded a trading volume of 208 MU of power – a 151% increase from the previous month. It said that 25 members participated in the market during the month.

Now, IEX has also launched green daily and green weekly contracts on its green market trading platform. The contracts are available for both solar and non-solar power.

 

Image credit: Invenergy