Power sector witnesses sharp drop in demand amid coronavirus lockdown

NEW DELHI: Any broad-based decline in economic activity is a crisis for a core sector like power and the impact of the Covid-19 pandemic is beginning to show. With the nationwide lockdown suppressing most industrial activity, India’s power sector is facing a sharp drop in demand and, consequently, revenues.

The cash crunch is expected to exacerbate the sector’s already shaky debt situation — power distribution companies (discoms) owed power generators (gencos) Rs 92,602 crore in dues as of the end of February, a 31 per cent increase from last year. The situation has only worsened since the lockdown took most industrial activity out of the game in late March. Peak power demand met as of April 26 stood at 123.65 GW, compared to an average of around 176.8 GW during the month last year.

Commercial and industrial operations account for over 52 per cent of total power demand in India, with households and farm operations just 24 and 18 per cent respectively.

On Wednesday, ratings agency ICRA warned that discoms face losses of Rs 20,000 crore this fiscal year, with power demand expected to contract by a percentage point (1%). The Confederation of Indian Industry (CII) expects these losses to come out closer to Rs 30,000 crore.

Plant load factors (PLF), a measure of capacity utilisation, are also expected to fall, from 56 per cent last year to 54 per cent in FY21. Pre-pandemic forecasts had seen PLF rising to 60 per cent.

Analysts at India Ratings point out that with demand from subsiding customers like industries who pay high tariffs falling, and demand from subsidised segments rising, overall collections would be dented.

“... the transmission & distribution loss incurred on the low tension residential consumers is far higher than that incurred on the high tension industrial and commercial consumers,” the agency warned.

The crisis at the discom level is only set to cascade upstream to power producers.

“This will aggravate the payment delays from discoms to power generation companies, which are already reeling under large payment dues... Timely and adequate liquidity support from the respective state governments, including the payment of regular agriculture subsidy, remains extremely crucial,” said Girishkumar Kadam, sector head and VP, ICRA Ratings.

While RBI announced a three-month moratorium for discom payments in March, this may well need to be extended, with the CII calling for six months. On gencos’ side, CII has asked for extended credit from Coal India for power producers while procuring coal and the deferral of indirect tax payments.