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Cover Story | November 2016

Good monsoon A mixed blessing

After enduring two consecutive years of drought, the monsoon in India has been recorded as ´normal´ in 2016, at just 3 per cent below the long term average. The monsoon, which spans from June to September, is said to be normal when rainfall is between 96-104 per cent of the long term (50 year) average of about 88 centimetres. Comparatively, in 2015, the southwest monsoon ended with a rain shortfall of 14 per cent, the worst since 2009. This sends good news to those associated with the country´s agriculture sectors that have been too long in the gloom.

While 2015 was an El Nino year that resulted in weak monsoons and droughts in several regions of the country, 2016 could be termed the opposite - a La Nina year - that will bring bumper harvests due to better rainfall. For the first time in 3 years, rains were well-distributed in the just concluded season. The temporal and spatial distribution of rainfall is crucial in determining its impact on food production. Only 33 per cent of the districts saw deficient rains, compared with 49 per cent in 2015 and 46 per cent in 2014. Importantly, most of the deficient districts are either well-irrigated or not important agriculturally.

After a slow start in June, rains caught up and boosted reservoir levels from the lows seen at the beginning of this fiscal, and provided the much need confidence to farmers. Not surprisingly, area coverage under kharif crops has risen to 1,060 lakh hectare compared with 1,052 lakh hectare last year.

The success of the monsoon will play a vital role in shaping India´s economy. The gross domestic product (GDP) growth, food prices, consumer spending and interest rates are all areas that can be influenced by the rains.

As good monsoon rains reduce the need to use the fuel in irrigation pumps, the demand in the country for diesel and diesel pump sets and engines is said to have nose-dived.

On the other hand, hydel reservoirs, brimming with water, are able to operate at full capacities at many places. But this has led to many coal-based thermal stations going out of operation due to lack of demand for power. However, in a few months, once the harvest is over, rural demand for power is expected to go up steeply, with rural incomes looking up.

That way, the monsoon that had been good temporally and spatially during the current year, has impacted various segments of the power sector, either positively or negatively. A good monsoon also alters the Power Sector scenario by altering the stereotype patterns. Let us look into these changing dynamics.

Hydro Power
´With the advent of monsoon and ample rainfall, the reservoir storage situation has improved this season. Data till September 22 indicates reservoir storage was 17 per cent higher year-on-year,´ said Dharmakirti Joshi, Chief Economist, CRISIL Ltd in a report.

Thus, an adequate monsoon this year has resulted in higher levels of hydro-power generation. The share of hydro-power in the country´s total power generation increased to 15 per cent in July from 10 per cent in May, according to the generation data. According to estimates, on an average, 20,000 MW of power was being injected from hydel sources during the monsoon by July-end, out of the total hydro capacity of 43,112 MW of installed capacity at end-September 2016.

India´s hydro power generation capacity is mostly concentrated in the Himalayan regions, and these generating stations are fed from the glaciers. ´Due to this reason, the hydro power sector did not see a significant uptick at a country level as would be expected by many. At a state-level, however, many hydro-power rich states like Karnataka, Andhra Pradesh, Kerala etc., have benefitted,´ said Aditya Ravidran, Associate Consultant, Feedback Business Consulting Services Pvt Ltd.

While coal can be stored and used to generate power when demand picks up, hydro-electricity has to be generated when there is a steady flow of water and cannot be kept for later use, forcing a number of hydel-power producers to sell whatever is produced at throwaway prices. As a result, power utilities in at least five large power consuming states have switched from coal-fired electricity to cheaper hydel power during the last few months, affecting the plant load factors (PLF) of coal-based power plants.

Coal-based plants
Adequate rains this season and slowing demand has led to 16,000 MW of thermal power generation capacity being shut down, close to 10,000 MW of this for a month from the northern region by July-end.

By end-September 2016, the peak deficit has come down to 0.7 per cent or 1,185 MW, compared to the peak deficit of 3.2 per cent or 4,781 MW as at the end of September 2015, reflecting the kind of surplus power capacity that is available In September 2016. The demand has grown by about 6 per cent over the last one year from 150,728 MW in September 2015 to 159,243 MW in September 2016. On the other hand, the total installed generating capacity in the country touched 306,358 MW at the end of September 2016, which is about 192 per cent of the existing demand. Coal-based capacity accounts for over 61 per cent of the total national capacity at 187, 253 MW.

For the first time in the history of Mahagenco, Maharashtra´s state-run power generation company, it had to completely shut down four of its seven power plants - all the units of Koradi, Khaparkheda, Bhusawal and Parli plants. The total generation of Mahagenco has gone below 2,000 MW for the first time. The reason is lack of demand for power from state-run discom, MSEDCL. Maharashtra Electricity Regulatory Commission´s (MERC´s) merit order dispatch order enjoins upon MSEDCL to buy cheap power first before going in for costlier power.

This is the stand taken by various discoms in the process of implementation of Ujwal Discom Assurance Yojana (UDAY), which proposes to shore up the health of debt-ridden discoms. For consumers in these states, this means lower electricity bills. States like Punjab, Haryana, Rajasthan, Madhya Pradesh and Maharashtra are cutting down on coal procurement from CIL, according to reports.

As the cost of generation of Mahagenco is higher than some private plants, the company had to take a beating.

Among the major plants shut down at the national level in the public sector include NTPC´s Dadri and Badarpur in the north, Simhadri and Ramagundam in the south, and Vindhayachal and Korba in the west. Among the private entities, Lanco and IL&FS´ plants were shut. The state-owned thermal generating stations in Andhra, Tamil Nadu, Karnataka, Rajasthan, Punjab and Haryana were also shut, among others.

Renew Installations
´On the renewable side, solar power generation has seen a dip due to the unfavourable circumstances like prolonged cloud-cover brought in by the weather. This has been compensated by the increased generation from wind energy systems, particularly in the southern states of Tamil Nadu, Karnataka and Andhra Pradesh, said Ravindran.

The wind velocity is high during the rainy season and hence wind power generation goes up during monsoon. Many people are going in for solar roof top installations, gradually reducing the demand for grid-based power.

Solar power installations in the country have reached 8,643 MW, driven by four states - Tamil Nadu, Rajasthan, Gujarat and Andhra Pradesh - crossing the 1gw solar installation mark, Mercom capital, a green energy market tracker, said in a recent report. It has projected a total capacity of 4.8 GW for calendar year 2016. Installations have already reached a capacity of 3.8 GW. India has 14 GW of solar projects in various stages of development and another 7 GW waiting to be auctioned. Some 500MW solar capacity was added in a month through September 2016 alone, it added.

Coal dispatches
With the Coal India Ltd (CIL) reversing the earlier scenario, where the power plants were left with an alarmingly low level of one week´s stock of coal during earlier monsoon seasons, the power plants had sufficient coal stocks this year to meet any kind of power demand. The state-owned CIL accounts for over 80 per cent of domestic coal production.

´This year, there was sufficient coal stock at the power plants as well as the pitheads, which averted the need for running these plants at lower PLFs,´ says Ravindran.

However, due to falling demand for coal from the power sector, CIL´s coal dispatches to power sector have slid in August 2016. During August 2016, the CIL dispatches have fallen 12.5 per cent compared to August 2015, at 26.482 million tonnes, while that of Singareni Collieries Company Ltd (SCCL) it was a fall of 9.4 per cent at 3.661 million tonnes. But, during the first five months up to August CIL and SCCL dispatches have fallen only by 1.9 per cent and 3.2 per cent respectively, from which we can infer that the falling dispatches is only a recent phenomenon.

´As usual, the mines are getting affected by monsoon. For many mines, the dispatches have been drastically low. As a result many power plants have been asking for more and more coal from alternative sources. Since the government is trying to accommodate such Independent Power Producers (IPPs), it is doing the same at the cost of captive power plants,´ said Rajiv Agrawal, Secretary, Indian Captive Power Producers Association (ICPPA). This process is being repeated again this year.

´Most of the customers are trying to lift minimum quantity from CIL, so that they don´t have to pay penalty,´ Agrawal added.

Monsoon stress
CRISIL has identified Gujarat and Karnataka for having some pockets of low monsoon stress for the second or third year in a row. However, it did not study its impact to the power sector in the report.

Kerala is another state that is facing a drastic shortage in monsoon rainfall and subsequent fall in inflow to dams, the lowest in the last 10 years, affecting power generation in the state.

The state has already taken steps to purchase 150 MW to overcome the anticipated shortage. ´There has been a drastic drop in rainfall this monsoon compared to previous years, due to which only 58 per cent of water inflow than expected has been received in dams for power generation. This is the lowest inflow to dams in the last 10 years,´ Power Minister Kadakampally Surendran said recently.

Other segments
Referring to transmission and distribution (T&D) segment of power sector, Ravindran said, ´The decent availability of power in the system meant that there were no untoward events like blackouts or load-shedding in the T&D network of the country.´

´Normal monsoons are rarely perfect in their spatial and temporal distribution. As of September 28, 33 per cent of India´s 629 districts for which rainfall data is available, have seen rainfall deficiency of 20 per cent or more. This is an improvement over 2015 and 2014, when the number of districts reporting deficient rains was 49 per cent and 46 per cent, respectively,´ said Joshi. Other major segments that have faced drying up of demand are diesel engines and pumpsets. Because, ´sales of diesel engines, inverters and batteries picks up with the progress of summer and continues throughout the rainy season. This is because of the fact that the frequency of power outages tend to be more during these seasons owing to load-shedding in summers and technical outages (line faults and circuit tripping) in the rainy seasons,´ said Ravindran. On the other hand, a better spread of monsoon meant that there was reduced dependence on irrigation facilities, pumps and pumping systems during this Kharif season.

Economic impact The economic impact of the fairly adequate monsoon is expected to be positive and phenomenal too. This will be visible in the months and quarters to come in the form of slight boost to GDP growth (as the share of agriculture sector is only 16 per cent in the GDP) and revival of rural demand following a robust harvest induced by good monsoon. Net to net, CRISIL expects real GDP to grow 7.9 per cent this fiscal and agriculture GDP at an above-trend 4 per cent, while Consumer Price Index (CPI) inflation would remain contained at 5 per cent (10 basis points up year-on-year). It expects the favourable monsoon to revive rural incomes. Larger agricultural output will help boost supply and rural incomes. It will also exert a downward pressure on prices and farm incomes.

´We estimate that on balance, even with a fall in food prices, the output effect will weigh in and raise agricultural GDP by `1.49 trillion (`1.49 lakh crore) this fiscal. This is assuming an above-trend growth of 4 per cent in agricultural output. In 2015-16, the increase in agricultural income was `978 billion (`97,800 crore),´ Joshi said.

This is expected to boost the disposable incomes in the hands of rural households, increasing demand for the goods and services of interest to them from the power sector like general electrical consumables, television, two-wheelers, farm equipment, energy efficient motors and pumps, solar pump sets etc.

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