Saturday, January 30, 2010

The difficulty of assessing peak power deficit

One of the more widely accepted proxies for economic growth is the growth in electricity consumption, especially for developing economies. However, there may be reasons to doubt the direct co-relation between electricity and GDP growth rates. In fact, for much the same reason, it may not be possible to assess with any reasonable degree of correctness the actual electricity demand in these countries where recurrent load reliefs or power cuts are a characteristic of daily life.

It is estimated that India has electricity supply deficit, both during normal (base) and peak times, in the range of 10-20%. A recent KPMG report has forecast the peak deficit for 2010 at 12.6%, up from the 11.9% for 2009. However, it is extremely difficult to make reasonably accurate approximations of supply deficits, especially in the context of developing countries like India where demand is suppressed in many dimensions.

For a start, the practice of load reliefs (or power cuts) - scheduled and unscheduled - are so widespread that even the first level of approximation of demand cannot be made with any confidence. Then there is demand, mainly industrial, which is suppressed by way of consumption being curtailed, postponed or even cancelled due to the problems with reliability and availability of supply.

In view of the substantial suppressed demand, electricity (in countries like India) is an excellent example of supply creating its own demand, Say's law. The mere availability of adequate and reliable supply will increase consumption by releasing the pent up demand among existing consumers and encouraging more energy-intensive industrial and commercial activity, especially in the suburban and rural areas.

Once the supply increases, a large share of pent-up demand, being currently met (fully or partially) through diesel and other generator sets gets shifted into grid electricity along with the regular domestic demand (suppressed due to load relief). However, this consumption does not add substantially to the GDP, in so far as it only results in greater capacity utilization and people using more electricity. In the circumstances, not all the electricity supply growth will contribute to increase in GDP.

No comments: