India Implements Dynamic Power Tariffs

India’s power consumption pattern is experiencing a significant shift due to the rapid expansion of air-conditioning usage and the increased deployment of solar energy. To address this evolving situation, the government has announced the adoption of time-of-day tariffs, aiming to incentivize electricity consumption during solar hours while discouraging usage after sunset.

The Ministry of Power unveiled its plans for a three-tier tariff system on June 23, introducing different pricing structures for normal hours, solar hours, and peak hours (“India to cut daytime power tariffs, raise fees for night use,” Reuters, June 23).

During solar hours, prices will be reduced by 10-20% compared to regular rates, while peak hours will become 10-20% more expensive, resulting in a total price swing ranging from 20-40%, from least expensive to most expensive.

These new tariff rates will be implemented for small commercial and industrial customers starting from April 2024, while most other customers, excluding the agricultural sector, will experience the changes from April 2025.

Many state electricity regulators have already implemented time-of-day tariffs for large commercial and industrial consumers, as this pricing strategy aims to optimize the utilization of solar power and coal-fired generation capacity by encouraging daytime load consumption while moderating evening demand.

In May 2023, India witnessed a slight decrease in total electricity consumption compared to the same period the previous year, attributed to cooler temperatures. However, peak loads during the afternoon (when solar power is available) and evening (when it is not) continued to surge.

While overall consumption for the month declined by -0.4% compared to the previous year, the maximum daily load during the evening peak witnessed an increase of +6.6%, and the daily afternoon peak surged by +8.2%.

With the swift deployment of solar generators, the afternoon peak has become less of a concern for the transmission system. However, the evening peak poses more challenges due to rapid load growth compounded by the absence of solar output.

In May 2023, the maximum evening load served reached 205 Gigawatts, rising from 192 GW in May 2022 and 162 GW in May 2021. To meet the escalating evening demand, the transmission system has relied on coal-fired, gas-fired, and hydroelectric generators.

Despite the increase in solar output and lower temperatures, India’s coal-fired units generated 106 billion kilowatt-hours (kWh) in May 2023, compared to 102 billion kWh in May 2022 and 81 billion kWh in May 2021.


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