The southwest monsoon spans from June to September and contributes to more than 75% of the annual rainfall in India. India Meteorological Department (IMD) in its long-range forecast announced a likelihood for a normal monsoon rainfall during 2018, and expected the rainfall to be 97% of the long period average (LPA). At the end of June 2018, the cumulative rainfall over the country has been 92.6% of the LPA, reflecting a normal monsoon condition to date.

Monsoon rainfall has an inverse relationship with electricity demand because of not only the change in the weather, but also heavy dependence on agricultural demand, which is impacted by monsoon variability. A similar influence is also observed on the generation mix, which is dominated by thermal capacity (65%). Fuel interplay between hydro, renewables, coal, and gas occurs during the monsoon season, that attracts power and fuel trading opportunities.

Figure 1: India's southwest monsoon: A fuel interplay attracting trading opportunities.

During the 2017 monsoon, hydro utilization rates were impacted, owing to subnormal monsoon trends for the past few years influencing the hydro reservoir levels in the Southern and Western regions. On the other hand, coal's contribution in the generation mix fell owing to high outages - both planned maintenance and forced outages (owing to technical constraints and fuel shortages). Given the dynamics of coal, hydro, and renewables generation during the monsoon season, the supply/demand imbalance thus influenced the short-term power prices, mirroring an inverse relationship with the monsoon rainfall.

The higher power prices hence offer an opportunity to gas-based power plants (tied under power purchase agreements) to burn LNG and meet the fallout in generation where utilities try to hedge their exposure in the volatile spot market. Past years' trends illustrate an uptick in LNG consumption in the power sector during the monsoon months.

Just a month into the monsoon this year, continued higher temperatures, coal outages, and lower hydro reservoir levels have been putting pressure on LNG imports and power prices. It will be interesting to watch this season, the rainfall spread across the regions and its impact on energy sector trends.

Learn more about our coverage of the South Asian energy market through our Regional Power, Gas, Coal, and Renewables service.

Deeksha Wason is a Senior Research Analyst covering the power market analysis on India and other South Asian countries.
Posted 11 July 2018

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.