NEW DELHI: The demand for electricity and auto fuel is expected to go up as India approaches general elections, experts said.
According to data collated by Icra and the Indian Energy Exchange (IEX), the demand for electricity, petrol and diesel picked up in March of 2009 and 2014, just before general elections. While the 2009 elections were held in five phases from 16 April to 13 May, the 2014 elections were held over nine phases from 7 April to 12 May. Polling this year will be held in seven phases from 11 April to 19 May.
In 2009, the average electricity price in the spot market, having held steady at ₹5.52 per unit or kilowatt hour (kWh) in January, nearly doubled to ₹10.79 per unit in April, shows IEX data.
“Based on past petrol and diesel consumption data in the months preceding general elections, demand spikes for both diesel and petrol due to intensive campaigning, rallies as well as deployment of security forces and polling officers. Similar trends can be expected in April and May 2019, with a multi-phase polling schedule in different parts of the country," said K. Ravichandran, senior vice-president and group head, corporate sector ratings at rating agency Icra Ltd.
India, the world’s third-largest oil importer, has been concerned about a rise in global crude oil prices because of measures taken by the Organization of the Petroleum Exporting Countries (Opec) and Russia to cut supplies. In addition, the US has imposed sanctions on state-run oil firm Petróleos de Venezuela SA, and President Donald Trump pulled the US out of a 2015 pact with energy-rich Iran.
Requisitioning of additional power by distribution companies has also led to a short-term hike in electricity prices. The all-time high for electricity in the spot market was ₹18.2 per unit for 4 October delivery last year. Of the estimated 1,200 billion units (BU) of electricity generated in India, the short-term market comprises 130-150BU.
“With elections around the corner, we expect energy demand growth to remain higher at about 6.5-7% in the near term, as evidenced by trends in the past 12-month period. This was also driven by more focus on reliable power supply and lower load shedding in rural areas," added Sabyasachi Majumdar, senior vice-president and group head, corporate ratings at Icra Ltd.
The Financial Express reported on 16 March about states making arrangements to tie up power supply agreements on a short-term basis for April and at prices much higher than they normally pay.
Even if short-term, this is good news for the power sector which is plagued by over-capacity and low demand. The government claims that in the nine months of FY19, peak demand grew at 7.9% as compared to 2.8% in the corresponding period in FY18. It attributed this increased power demand to the spread of household electrification, increased supply to agricultural consumers, low hydropower generation and extended summers. Of India’s installed capacity of 349 gigawatts (GW), peak demand is only 177GW.
“In anticipation of higher demand, many of distribution utilities have already tied up short term power capacity at rates between ₹4.5 to ₹6/ unit over the next three-to-six-month period through the DEEP portal," said Majumdar, referring to the government’s Discovery of Efficient Electricity Price e-bidding reverse auction portal .
“With this, there may be spikes in spot power tariff on energy exchange depending on power demand and coal availability in the upcoming months in our view," said Majumdar.
The Discovery of Efficient Electricity Price (DEEP) e-bidding reverse auction portal is a government e-bidding platform where state electricity regulators endorse the price discovered through a competitive bidding.
However, electricity demand is yet to pick up in the run-up to 2019 general elections. Experts believe this will change as campaigning picks up, notwithstanding the precarious finances of some state-owned electricity distribution companies in the case of power procurement.
“Utility buying behaviour changes during this period to meet unserved demand as governments are supportive of additional power purchase. Financial viability doesn’t impact decision making," said Sambitosh Mohapatra, partner, power and utilities at PwC India.
“There will be an impact because of elections wherein the state governments will be procuring power to maintain the round-the-clock supply. It will lead to an increase in demand. Having said that, the demand also increases with the onset of summers in the month of April and May. There is enough liquidity on the sell side to meet such demand spikes," said S.N. Goel, chief executive officer and managing director, IEX.
