CORONAVIRUS IMPACT ON INDIAN POWER SECTOR

The COVID-19 pandemic is expected to have an adverse impact on the Indian power sector due to slump in demand for power from industrial and commercial establishments being shut down due to lockdown across the nation. By Supriya A Oundhakar, Associate Editor

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The Indian power sector has been facing challenging times right since 2018, with declining industrial activity leading to reduction in demand for power. The novel coronavirus disease COVID-19 has further worsened the situation not only in India but all across the globe spelling its doom on the global economy. India has so far around 2,100 active coronavirus positive cases (as on 3rd April), and around 70 people have lost their lives. Assessing the severe impact of coronavirus pandemic on the global economy, the latest UN trade report estimated that the world economy will go into recession this year with loss of trillions of dollars of global income. India also cannot escape adverse impact of this crisis on its economy.

Moody’s Investors Service says that the COVID-19 pandemic will cause an unprecedented shock to the global economy amid the 21-day nationwide lockdown to control the spread of the deadly coronavirus. It also cuts India’s GDP growth for the calendar year 2020 to 2.5 per cent, from an earlier estimate of 5.3 per cent.

The COVID-19 pandemic is also expected to have an adverse impact on the Indian power sector. Already, large portions of the world are under lockdown, with most industrial and commercial establishments being shut down. This has led to a slump in demand for power. The freeze on rail travel has also led to a drastic reduction in electricity demand in India. Given the fact that electricity for railways is subsidised, the sharp decline in railways power consumption is expected to have a disproportional impact on the power sector. ICRA report notes that these segments constitute about 40 per cent of the all-India electricity demand. Additionally, with the central and state governments prioritising healthcare and relief measures, delays and deferment of subsidies are quite probable.

Meanwhile, the Union Power Ministry released a statement that consumers are unable to pay their dues to the distribution companies (discoms) due to the lockdown and this has affected the liquidity position of the discoms thereby, impairing their ability to pay to the generating and transmission companies.

As per the ICRA report, all-India electricity demand is expected to decline by 20-25 per cent on a year-on-year basis during the period of the lockdown. “The revenue deficit for the discoms is estimated to be about Rs 13,000 crore per month, on all India basis. This would in turn adversely impact the liquidity profile of the discoms, increase their subsidy requirement and lead to delays in payments to the power generation and transmission companies,” informs Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate Ratings, ICRA in its report. While this will adversely affect the revenue of discoms, the Ministry of Power has directed the Central Electricity Regulatory Commission (CERC) to offer discoms a moratorium of three months on payments to power generation and transmission companies and requested state governments to issue similar directions to State Electricity Regulatory Commissions (SERCs). Further, the power generation companies are under financial distress due to delay in payments by discoms across majority of states, with payment dues of more than Rs. 85,000 crore as of November 2019 at all India level as per the data on PRAAPTI portal. The lockdown will inevitably result in further delays in payments, leading to lack of availability of adequate liquidity buffer in the form of debt service reserve and undrawn working capital limits. This will inevitably burden power generation companies.

Reserve Bank of India (RBI) notification has allowed borrowers to not pay any equated monthly instalments or EMIs for any loans until 30 June. ICRA report states that expected moderation in the interest rate cycle would be a source of comfort in the near term. However, the timely approval of the moratorium by the boards of the banks and financial institutions remains crucial, states the ICRA report.

While revenues for power generation companies having longterm power purchase agreements (PPAs) with the state distribution utilities (discoms) will be protected by the provision for capacity charges linked to plant availability in case of thermal and large hydro power projects and “must run” status in case of nuclear and renewable power projects.

“While the GoI has now notified electricity including generation,  transmission and distribution along with coal transportation as an essential service and has exempted these activities from the lockdown, the effective implementation of this exemption at the state level remains important,” states Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings. While taking note of the impact of corona outbreak, he adds, “Average monthly thermal PLF would further dip to 50-52 per cent against 63 per cent in the corresponding period of previous year, due to a considerable drop in demand and consequently, power generation companies especially those without any long-term PPAs would be adversely impacted given the weakening of the power tariffs in the short-term or power exchange market.”

According to the report, the revenue for the power transmission companies is supported by the presence of availability linked payment mechanism. Nonetheless, the operations for power generation projects could be affected because of disruption in movement of manpower, fuel, water and other materials.

“Planned capital construction, shutdowns and turnarounds will be impacted as a large congregation of construction personnel will be avoided. This will impact EPC firms and their contractual obligations signed with operating companies,” adds Muthuraman Ramasamy, Industry Director, Industrial Practice, Frost & Sullivan.

India is dependent on China for solar cells or modules. The country sources around 80 per cent of solar cells and modules from China. Due to outbreak of coronavirus, the Indian solar sector is reeling under distress. Nearly 3 GW of under-construction solar power projects, worth Rs 16,000 crore ($2.16 billion), are at risk of delays when they miss their scheduled commercial operation dates. However, Renewable Energy Minister R K Singh said that India’s solar power industry was under no compulsion to import solar cells or modules from China following the  coronavirus outbreak. They are to meet their requirements either from the domestic market or alternative sources. “Renewable energy will also be hit, as the majority of raw materials (solar PV) are sourced from China. Even though China is inching back to recovery, operators may violate the contract and choose alternate or local suppliers,” states Ramasamy from Frost & Sullivan.

Returning to normalcy will take time

Obviously, the biggest task facing the world right now is to stop the spread of the coronavirus. However, R K Chugh, President, Indian Electrical & Electronics Manufacturers’ Association (IEEMA) observes, “Even when the global public health crisis comes under control and global supply chain disruptions end, business will not return to normal for couple of quarters. As is true for industry in general, power sector also is facing issues of all kinds.” He said that it is too early to assess the complete impact on production and revenue etc.

Sharing his views on the impact of novel coronavirus outbreak on electrical industry, Dinesh Aggarwal, Joint Managing Director, Panasonic Life Solutions India said, “In view of the COVID-19 outbreak, we have been severely impacted. The manufacturing of electrical products has been completely stopped and all our plants are non-operational.” He believes that the business will be affected for a long time after the country opens up post full control of the epidemic.

Opportunity in difficulty
While the deadly coronavirus spreads around the world, there is a huge demand of power backup (UPS) amongst the healthcare industry. With hospitals making test benches for coronavirus testing, it is critical to support the healthcare sector. UPS manufacturers are joining hands with hospitals and supplying UPS on urgent demand. Best Power Equipments (BPE) has recently installed more than 25 UPS of 3KVA to reputed hospitals in Delhi.

With this fight against coronavirus, there is a massive overload of hospitals of patients. To guarantee service continuity and quality, we are making efforts in spite of lockdown to meet the huge demand for power backup, informed Amitansu Satpathy, Managing Director, BPE.

Conclusion
Over the short- to medium-term, it is expected distress at all stages of the power cycle – from production to transmission and distribution, with corresponding impact of reduced demand for manufacturing and service industries supporting the power companies. It is to be hoped that the government will take note of the critically important nature of the power sector and offer timely support and relief.

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