Surging of India’s Electricity Demand – Explained Pointwise

Table of Content

What is Peak Demand? How do States manage peak demand? What are some challenges faced by the States due to rising demand? How does renewable energy help meet peak electricity demand? What needs to be done?

What is Peak Demand?

• Peak Demand (also called Peak Load or Electricity Peak) refers to the single highest moment of electricity usage on the electrical grid within a specific time period (typically a 15-minute interval).
• It represents the maximum amount of electricity consumers require simultaneously from the grid.
• Peak demand generally rises during:
  • Summer heatwaves due to heavy air-conditioner and cooler usage.
  • Industrial expansion and economic growth.
  • Increased urbanization and electrification.
• Entire power sector infrastructure (generation, transmission, distribution) needs to be planned to deal with the peak demand. If enough capacity is built to meet the peak demand, it will remain underutilized during off-peak hours, on the other hand, if enough capacity is not available to meet the peak demand, then the system will face issues like load shedding & grid instability.
• In last 5 years, the peak demand in India has risen by 37%. This surge has made it tougher for States to fulfill electricity requirements.

  

How do States manage peak demand?

1. Contractual Supply & Power Exchange Purchases: Contractual supply comprises the long-term power purchase agreements (PPAs) that State DISCOMs sign with power supply over several years. Almost 85-90% of the demand in India is being met through contractual supply between the DISCOMs & generators. In times when contractual supply falls short due to spike in demand – DISCOMs turn to second mechanism – buying power from power exchanges. States buy short-term power from the Indian Energy Exchange (IEX) and Power Exchange India Ltd (PXIL) during peak hours.
2. Demand-Side Management (DSM):
   • Time-of-Day (ToD) Tariffs: Higher electricity prices during peak hours (typically 6–10 PM) to discourage non-essential consumption.
   • Energy Efficiency Programs: Promotion of LED bulbs, star-rated appliances (BEE ratings), and efficient irrigation pumps (e.g. the KUSUM scheme for solar pumps).
   • Load Limiting: Industrial consumers are contracted with maximum demand limits; exceeding them attracts penalty charges.
3. Load Shedding & Roster-Based Cuts: Planned, rotational power cuts in specific zones or feeders when supply falls short. Agricultural feeders are often separated from domestic/industrial ones to allow targeted cuts without affecting critical consumers.
4. Interconnection & Grid Balancing:
   • The National Grid (One Nation One Grid) allows power-surplus states (e.g., Himachal Pradesh, Sikkim) to sell to deficit states.
   • Regional Load Despatch Centres (RLDCs) and State Load Despatch Centres (SLDCs) coordinate real-time balancing.
5. Battery Energy Storage Systems (BESS): Increasingly deployed at grid scale (e.g., Andhra Pradesh, Rajasthan pilots) to store solar energy and discharge during evening peaks.

What are some challenges faced by the States due to rising demand?

1. Expensive Emergency Power: DISCOMs rely on long-term agreements for ~85-90% of their power, which is relatively cheap. When demand spikes, they are forced to buy extra power from short-term exchanges, where prices can skyrocket. Prices have repeatedly hit the regulatory ceiling of ₹10 per kilowatt-hour during recent peaks, making it incredibly costly to meet demand.
2. Inadequacy of Distribution Network: Even when power is available, the last-mile network often fails. The distribution infrastructure has not kept pace with generation growth. According to a recent assessment by CEA, nearly 13 lakh distribution transformers (DTs) fail annually across India, leading to local blackouts. While states like Kerala have a failure rate of less than 2%, some northern states see rates as high as 20%. Overloading of transformers & feeders, ageing equipment, and inadequate maintenance continue to compromise the last-mile power delivery. 
3. States with Low Fiscal Space: The challenge posed by demand surges becomes acute for financially stressed States because they are neither able to procure costly short-term power nor invest in distribution network upgrades. States like UP & Bihar continue to grapple with high losses, ageing distribution infrastructure, and overloaded transformers.
4. Financial Stress on DISCOMs: Many DISCOMs are already in a precarious financial state, with cumulative losses estimated around ₹1 lakh crore. They are forced to sell power to agricultural and domestic users at highly subsidised rates, which are often below their own cost of supply. This makes it very difficult to recover the high costs of peak power purchases.
5. Inadequate Transmission Capacity: Inter-state transmission corridors are congested, preventing power-surplus states from selling to deficit ones efficiently. Intra-state networks in rapidly urbanising states (UP, Rajasthan, MP) lag behind load growth.

How does renewable energy help meet peak electricity demand?

1. Solar Energy Contribution: States with high solar energy generation capacity, such as Gujarat & Karnataka, are able to meet daytime peak comfortably as the solar power generation align reasonably well with daytime commercial & agricultural demand. But these States face steep evening peaks after sunset, for which they need to increasingly depend on energy storage technologies such as pumped hydro storage (PHS) & battery energy storage system (BESS).
2. Wind Energy Contribution: Wind generation in India is often complementary to solar — wind tends to blow more during evenings and monsoons when solar is weak. Coastal states like Tamil Nadu, Gujarat, and Andhra Pradesh benefit from strong evening sea breezes.

What needs to be done?

1. Energy Storage Technologies: Despite its growing contribution, RE cannot help in ensuring reliable round-the-clock power supply because of its intermittent nature & also because electricity demand & RE power generation do not always align – e.g. Solar power generation falls sharply after sunset, Wind generation is seasonal & highly dependent on monsoon conditions. This is where energy storage technologies become critical for India’s power system:
   1. Battery Storage (BESS): The government has set ambitious targets, with plans to integrate around 47 GW of Battery Energy Storage Systems (BESS) by 2032.
   2. Pumped Storage Hydro (PSH): PHS is another key technology, with over 13,000 MW already under construction. Long-term transmission plans have been identified to support achieving 100 GW of PSP capacity; environmental clearances and funding need to be streamlined.
2. Strengthen Distribution Networks: Investment is needed to upgrade and modernize last-mile infrastructure to prevent local outages during peak periods. Government schemes like the Revamped Distribution Sector Scheme (RDSS) are designed to fund these upgrades, but they are linked to DISCOMs meeting specific performance targets, such as reducing AT&C losses.
3. Implement Tariff Reforms: DISCOMs need to move towards cost-reflective tariffs to bridge the gap between their average cost of supply and revenue realized. The Draft National Electricity Policy (NEP) 2026 proposes automatic annual tariff revisions if state regulators fail to act, ensuring timely adjustments.
4. Expand Time-of-Day (ToD) Tariffs: ToD tariffs charge less for electricity during solar hours and more during peak evening hours. This incentivizes consumers to shift heavy appliance use (like running a water heater or dishwasher) to the daytime. States like Maharashtra, Gujarat, and Rajasthan have already introduced such tariffs.
5. Leverage Smart Meters: Smart meters are the technological enabler for ToD tariffs and other demand-response programs. They provide real-time data, allowing consumers to make informed choices and utilities to manage grid stress better. The RDSS has a major focus on implementing prepaid smart metering. 

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