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Early Rains Wreck Power Plans
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Good morning. Every year India's power producers prepare for the harsh summers, readying capacity to step up production as power demand spikes. This year, early rains have played spoilt sport, crashing the spot electricity market on the exchanges.
In other news, could a unified grid be the solution for India's future energy needs? Meanwhile, it's now clear that electric car giant Tesla won't manufacture in India.
DECODE THE NEWS
See, Spot, Run: How Solar Overcapacity Is Stinging The Spot Power Market
What?
In May, India’s electricity spot market collapsed to a summer-time shock: power prices hit near zero, and over 8,000 megawatts (MW) of surplus electricity went unsold—roughly enough to power all of Karnataka. What went wrong?
Power producers had stocked up expecting a brutal summer, but early rains cooled demand faster than expected. ACs were switched off, and load forecasts crumbled.
With most distribution companies having already locked in high-cost supply contracts (at Rs 7–10/unit), excess power, especially from solar, hydro, and wind, was dumped on exchanges for as little as Rs 1 or less per unit.
Why?
According to energy analyst Victor Vanya, this mismatch has intensified because renewable producers, especially solar, can’t easily shut down or store power.
By May-end, solar ‘curtailments’ hit 18 GW, about 20% of total solar capacity, IIFL estimates. Market research firm SBI Capital Markets also flagged a “bifurcation” in the market—daytime prices plunged, while non-solar hours saw spot rates spike to Rs 10/unit.
Ratings firm ICRA Ltd now expects average spot tariffs to fall to Rs 4.4/unit in FY25, down from Rs 5.2 in FY24, even as generation capacity races ahead—44 GW is projected to be added in FY26, mostly from renewables.
Why Does It Matter?
But this glut comes at a cost. Crashing prices and forced cutbacks could hurt not just solar producers, but the entire value chain—equipment makers, construction companies, and project financiers.
Even global peers like Germany and California are battling this “solar overcapacity” problem, prompting a pivot toward battery energy storage.
CORE COMPETENCE
Will The Digital Energy Grid Reshape India’s Energy Landscape?
The Big Picture
India may soon have a UPI-scale transformation in energy through a proposed Digital Energy Grid (DEG), championed by Nandan Nilekani.
As AI’s global dominance becomes tightly tied to energy access — highlighted by OpenAI CEO Sam Altman—India’s DEG vision aims to build a unified, digital-first energy infrastructure that supports AI growth and democratizes energy access.
How Does It Work?
At its core, DEG rests on three pillars: unique digital IDs for all energy assets/actors, machine-readable metadata, and portable, verifiable access.
This will address the long-standing challenge of synchronizing information, energy, and transaction flows.
The development and implementation will be several orders of magnitude more complex and challenging than other widely successful billion-entity systems like UID or UPI.
Having said that, if there is any team which can execute such a vision, it would be the one which has already been successful in earlier such endeavours.
Why It Matters
Traditionally, energy generation and distribution have always been heavily centralised. This is about to undergo a tectonic shift, leading to the development and availability of digital platforms such as the Distributed Energy Resource Management Systems (DERMS).
By bridging producers, consumers, and regulators through a digitally managed, AI-optimised system, DEG could reshape India’s energy future and place it ahead in the AI era.
With over 13 billion smart energy devices globally, India’s move towards DERMS and decentralised energy could spawn millions of “energy entrepreneurs.”
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CORE NUMBER
57.6
That’s India’s manufacturing Purchasing Managers’ Index (PMI) for May 2025, down from 58.2 in April, and the lowest in three months. Compiled by S&P Global, PMI measures manufacturing activity based on new orders, output, employment, and prices, with 50 as the expansion threshold. HSBC’s Pranjul Bhandari said the standout was record-high job creation, even as input costs jumped sharply. Overall sentiment remains solid, but firms are watching rising costs and geopolitical tensions closely.
FROM THE PERIPHERY
India Woos EV Giants. India is set to open applications for its electric vehicle (EV) policy, offering lower import duties in exchange for local manufacturing. Announced in March 2024, the policy allows EV makers to import up to 8,000 cars annually at a reduced 15% duty if they invest Rs 4,150 crore ($500 million) in setting up a plant within three years. Applications may open this month and close by March 15, 2026. Stricter rules now include revenue targets of Rs 5,000 crore in year four and Rs 7,500 crore in year five, with penalties for non-compliance.
No ‘Make in India’ for Tesla. Tesla won’t be manufacturing cars in India, said Indian Heavy Industries Minister H.D. Kumaraswamy, though the company has leased a showroom in Mumbai to sell Teslas to Indians. That’s even though a Tesla delegate attended an early stakeholder consultation about India’s existing Production Linked Incentive (PLI) scheme for EVs, which the country launched in March 2024 to make it an EV hub. Previously, US President Donald Trump said that it would be “very unfair” if Tesla set up a manufacturing plant in India.
MSME Credit Dips Sharply. Bank loans sanctioned to the Ministry of Micro, Small and Medium Enterprises (MSMEs) under the Prime Minister's Employment Generation Programme fell 31% in FY25 to Rs 12,315 crore, down from nearly Rs 17,760 crore in FY24. This drop comes after loan disbursals nearly doubled between FY22 and FY24. MSMEs contribute about 29% to India’s GDP, making the slowdown worrying. Vivek Iyer of Grant Thornton Bharat told Mint the decline reflects weak entrepreneurial sentiment, not tighter bank norms, citing global uncertainties as key dampeners.
THE SIGNAL DAILY
Why Did Your Binge-Watching Bill Go Up?
In May, Amazon Prime announced that it will add advertisements to its basic plan starting June 17. If you don’t want ads, you need to either pay an extra 129 rupees per month, or 699 per year.
OTT was supposed to disrupt television, but it’s begun to look a lot more like its predecessor now. What’s up with that?
Find out more in this episode of The Signal Daily, featuring Vanita Kohli-Khandekar of The Media Room and Aroon Deep of The Hindu.
The Core produces The Signal Daily. Follow us wherever you get your favourite podcasts. Click here to check out the rest of our work.
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PODCAST
On Episode 597 of The Core Report, financial journalist Govindraj Ethiraj talks to Ayaz Memon, veteran sports journalist and commentator.
Markets bounce in fag end of trade as they grapple with uncertainty
Foreign brokerages are still wary of high valuations
US Dollar Index will fall 9% says Morgan Stanley
Maruti wants the Govt to step in to revive small car sales, Tesla is a no show
Gulf and Indian airlines exchange terse words on bilaterals at IATA summit in Delhi
IPL 2025 ends today. The journey so far and ahead
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