Power cos to face collateral damage as economy shrinks; demand likely to contract in current fiscal

Domestic electricity generation during the 5 months of April to August 2020 has been at a 4-year low.

India’s power demand is likely to remain subdued amid a daunting economic outlook for the coming quarters. The electricity demand and the consequent generation would contract for the financial year as a whole, said a report by Care Ratings. Domestic electricity generation during the 5 months of April to August 2020 has been at a 4-year low and 11 per cent lower than the generation in the corresponding months of last year, it added. While it is believed that the improvement in electricity consumption and generation would be contingent on the pace of economic revival, the forecast of a double-digit contraction in FY21 GDP has induced fear in the power sector as well.

Even as the lockdown restrictions have been lifted, the industrial and commercial activity is far from the pre-pandemic levels and they are unlikely to touch that level in the near future. The electricity demand and generation rebounded as soon as the nationwide lockdown was lifted but they could not sustain. Electricity generation in the month of August 2020 was 2.5 per cent lower than July, which shows that economic and business activity continues to be limited despite the lifting of the lockdown in various regions. Being the largest source of electricity, thermal power witnessed the maximum fall of 8 per cent in the month, however, it was partly offset by higher output from renewable sources.

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Meanwhile, the lockdown has not only pushed the demand from a cliff but has also contributed to shooting up the outstanding dues of the distribution companies. The financial health of Discoms was fragile even before the pandemic but as the pandemic hit India’s coast, the dues started to swell further. Payables by Discoms had significantly increased from Rs 90,000 crore as of March 2020 to more than Rs. 1.30 Lakh Crores as of June 2020. However, in an effort to provide some relief to the Discoms, the centre had announced a liquidity infusion package of Rs 90,000 crore in May 2020.