Weak energy demand

by Manasi Swamy

Electricity requirement in India weakened in August 2022. About 58 billion kwh of electricity was demanded during the first 14 days of the month. This was 1.3 per cent lower than the demand for electricity seen during the first 14 days of July 2022. August 2022 is the third successive month when electricity demand has weakened after peaking at 135.7 billion kwh in May 2022.

Requirement of electricity in India surged in April and May 2022 as industrial activity increased and contact intensive services resumed operations fully following withdrawal of all Covid related restrictions. Besides, the sweltering heat during the summer contributed to the surge in demand for electricity. According to the India Meteorological Department (IMD), 16 states in India witnessed 280 heat wave days between March 11 and May 18, 2022. This was the highest hot spell experienced in the last 12 years.

The increase in demand for electricity was so steep that utilities struggled to keep pace. Power deficit shot up to 1.9 per cent in April 2022, after averaging 0.5 per cent in the preceding six years. While the demand increased further in May 2022, utilities scaled up generation and pulled the deficit back to sub-0.5 per cent level. Government’s efforts to improve supplies of coal, the main fuel used for thermal power generation, enabled utilities increase generation and averted a full-blown power crisis.

Demand for electricity eased from its peak of 135.7 billion kwh in May 2022 to 133.6 billion kwh in June 2022 and 128.4 billion kwh in July 2022. The trend seems to have continued with electricity demand during the first 14 days of August 2022 measuring 1.3 per cent lower than during the same period of July 2022.

A sequential easing of demand for electricity was anticipated after an exceptionally hot summer this year. But the fall is greater than warranted by just a seasonal correction. This is clear from the slowing down of the year-on-year growth in energy demand too. After averaging at 18.1 per cent in the June 2022 quarter, the growth in electricity demand dropped to 2.3 per cent in July 2022. The requirement during the first 14 days of August 2022, in fact, was 0.8 per cent lower than the same period a year ago.

Besides electricity, a bulk of the energy requirement in India is met through petroleum products. Demand for these showed a somewhat similar trend. Consumption of petroleum products had surged during the first quarter of 2022-23. At 55.1 million tonnes, the consumption was at its fourth quarterly best. When compared year-on-year, the consumption was up by 16.8 per cent. Then, the growth decelerated to 6.1 per cent in July 2022.

The slowdown in growth of petroleum products consumption was led by transport fuels diesel, petrol and aviation turbine fuel (ATF). Year-on-year growth in aggregate consumption of these slumped from 24.5 per cent in the June 2022 quarter to 10.1 per cent in July 2022. An unfavourable base did play a role in the deceleration of growth. But the slowdown was more than that.

Year-on-year growth in aggregate consumption of industrial fuels naphtha, furnace oil and petroleum coke inched down from 1.7 per cent in the June 2022 quarter to 1.5 per cent in July 2022. The growth in consumption of the cooking fuel liquified petroleum gas (LPG), on the other hand, improved from 0.5 per cent in the June 2022 quarter to 1.7 per cent in July 2022.

Transport fuels consumption weakened in the first 15 days of August 2022 compared to the same period of July 2022, according to the sales details revealed by the oil marketing companies IOCL, HPCL and BPCL to the media. But when compared year-on-year, aggregate consumption of diesel, petrol and ATF was up by 21.8 per cent. A preview on industrial fuels consumption in August 2022, which had shown a relatively weaker trend in the first four months of 2022-23, is not available yet.

Statistically, India’s GDP growth and energy consumption growth are positively correlated. The historical trend in GDP and energy consumption data shows that the latter could be a good lead indicator to gauge the future performance of the economy. The recent slowdown in energy consumption suggests a possible slowing of GDP growth.