Power Grid

01 Aug 2020

Reimposed Lockdowns Weaken India's Power Demand

01 Aug 2020  by Asian-Power   
India’s electricity demand is likely to decline by 5-6% in FY 2021 over FY2020 with the re-imposition of lockdown restrictions in many parts across the country, according to a press release from ICRA.

The fall in demand assumes a demand decline of 3.5-4% in Q2 and Q3 and a marginal recovery of about 1% in Q4, given the slower pace of recovery expected in industrial and commercial activity in the country. This is expected to suppress the thermal PLF on an all India level to about 50-51% for the year.

Demand dropped 16.2% YoY in Q1, attributed to the lockdowns in response to the pandemic. Whilst the decline recovered from 23.1% in April to 10.9% in June and further to 3.9% in the first 15 days of July, the recovery was slower than expected.

ICRA’s group head & senior vice president for corporate ratings, Sabyasachi Majumdar, this has affected the revenues and cash collections of distribution companies (discoms), as the bulk of the decline came from high-tariff paying industrial and commercial consumers. The revenue gap for discoms is projected to rise to about $5.61-6.01b (INR420-450b) in FY2021.

The recovery of this revenue gap, if it was allowed through regulatory asset (RA) by State Electricity Regulatory Commissions (SERCs), would then require a tariff hike of 2.5-3% assuming that there will be a recovery of RA over a three-year period.

“As a result, timely implementation of such tariff hike by the respective state regulators for recovery of such revenue gap remains extremely critical for discoms,” Majumdar said.

Given these, the government has announced a liquidity support of $12.03b (INR900b) for the state power discoms, in the form of loans against receivables, from Power Financial Corporation (PFC) and Rural Electrification Corporation (REC). However, progress in off-taking these loans has been noted to be slow.

“Timely implementation of this scheme remains important to clear the outstanding dues to power generating companies, which stand at [$15.64b] (INR1.17t) as of May 2020,” the report stated. 

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