Estimating the Resurgence of the Indian Power Sector

– By Supriya A Oundhakar, Associate Editor

The Indian power sector has been reeling since 2018 with dwindling industrial activity leading to a slump in the demand for power. Prior to the COVID-19 outbreak, the Indian economy, industrial production, and manufacturing industry especially the capital goods sector were already witnessing down-ward trend. This is evident from Indian Electrical & the Electronics Manufacturers’ Association (IEEMA) statistics show that electricity generation dipped to 0.1 per cent during  December 2019 against a growth of 4.5 per cent in December 2018. The Electrical equipment industry declined by 10.4 per cent during the period of April – December 2019. The novel Coronavirus disease COVID-19 has further worsened the situation not only in India but all across the globe.

So far, India has reported more than 29,000 active Coronavirus positive cases (as on 28th April 2020). The United Nations Trade Report assessed the severe impact of the Coronavirus pandemic on the global economy and has estimated that the world economy will go into recession this year with the loss of trillions of dollars of global income. India also cannot escape the adverse impact of this crisis on its economy. The COVID-19 pandemic is also expected to have an adverse impact on the Indian power sector.

Studying the impact on the Power Sector

Nationwide Lockdown for the prevention of COVID 19 across the nation has led to a significant reduction in demand for power from the industrial and commercial sector. However, the demand from other areas – domestic demand due to work from home, healthcare infrastructure and utilities, has witnessed a spike. DISCOMs and generators have been under financial stress due to new and challenging economic realities and due to demand contraction.

With no revenues from remunerative commercial and industrial consumers, the utilities might see a revenue shortfall of Rs 15-20,000 crore, informs Rajesh K Mediratta, Director – Strategy and Regulatory, Indian Energy Exchange. He says: “Most of the generation in the country is operating at sub-optimal levels and payment default risks have elevated. Renewables are exposed to curtailment risks and off-take from thermal generators has reduced significantly. As a result, the short-term market prices have also plummeted in March and April,” says Prabhajit Kumar Sarkar, Managing Director & CEO, Power Exchange India Limited (PXIL).

Assessing the impact of COVID 19, Hitesh Karandikar, Director of ERDA states that power generation, transmission and distribution being on the essential need list was almost unaffected. Power generation continued without much hindrance though demand for the load was greatly reduced. So, the thermal power plants operated on a much lower Plant Load Factor (PLF).

Transportation and commercial activities came to a halt due to COVID 19; as a result manufacturers particularly in the MSME sector, and workers in the transmission and distribution sector have suffered a setback. Cash flow also has been severely hit and they face an existential crisis. Karandikar says: “As per an initial IEEMA estimate, total overdue outstanding of 135 member organisations of IEEMA was Rs 6,500 crore. With such huge outstanding and severe cash flow problem, many MSME equipment manufacturers or component manufacturers will not be able to recover quickly even after normalcy returns. This will create a huge churning in the electrical equipment manufacturing sector and finally affect the equipment availability and supply chain of electrical equipment in the distribution sector.”

Raising the concerns about the government projects, Anil Saboo, Chairman and Managing Director of Elektrolites (Power) Pvt Ltd, says:  “Power sector is already witnessing logistical delays in all over India. Government’s projects and ongoing tenders are undersubscribed because developers are unable to bid for them in time.”

On the other hand, the Indian Energy Exchange (IEX) has been at the forefront of working relentlessly to provide uninterrupted 24*7 operations and seamless connectivity.

From the 25th of March, with contraction in demand, the sell liquidity on exchange has been very high – nearly 2.6 times the demand, which keeps the prices in check. The average price in the day-ahead market from March 24 until April 20 is just at 2.36 Rs per unit. The low prices on the Exchange platform provide an attractive opportunity for the distribution utilities to replace their costly generation through exchange procurement, thereby optimising their procurement cost and conserving precious cash in this difficult moment.

A few distribution utilities such as Andhra Pradesh, Maharashtra, Gujarat, Tamil Nadu have been leading the way for others to emulate. These utilities have stepped up procurement through Exchange to multiply their savings. For instance, a distribution utility in South procured 14-20 MU per day and saved about Rs 42 crore in procurement in just about 20 days.

Ashish Mangal Managing Director of Dynamic Cables, says: “I personally view it as an opportunity to strategise effectively, plan efficiently, enhancing manufacturing skills and inventing new marketing strategies. This is the time when one can upgrade skills,” he says.

Impact on the Solar Sector

Development of Solar Parks and Ultra Mega Solar Power Projects has been giving good results since the last decade. As a result, today, India has over 35 GW solar installed capacity. Darshan N Shah, Executive Vice President – Sales & Marketing-UPS & Solar, Hitachi Hi-Rel Power Electronics, shares the impact COVID-19 has had. He says: “Major impacts on the solar segment is the complete disruption of the supply chain leading to a standstill situation pertaining to the execution of the projects, a drop in electricity demand by almost 50 per cent due to lack of activities across the major business segments and cash crunch situation amongst most of the solar developers or EPC firms.”

Indian solar sector is dependent on China for import of solar modules. The COVID-19 outbreak has also caused a slowdown of China’s economic growth. Indian solar manufacturing industry is set to be affected as over 80-90 per cent of solar components are imported from China.

“India is assuming shipment delays of several months risking multiple and huge solar projects falling behind schedule. Also due to the Coronavirus outbreak, the Indian solar manufacturing industry believes that there is an opportunity in this crisis as the nation looks to position itself as an alternative manufacturing destination for global firms,” says Bharat Bhut – Founder and Director, Goldi Solar.

Impact on Business

Mediratta Indian Energy Exchange Limited highlights that there has been 25-30 per correction in demand for power since the announcement of the preventive lockdown on March 25. The reduction in demand has also impacted volumes traded on the Exchange platform by two of our key customer segments namely the commercial and industrial consumers as well as from the distribution companies. In view of the reduction in clearing prices from 3.2 to 2.4 YoY due to lockdown, DISCOMs have raised their purchases to save on their purchase costs. They have shut-down their plants with higher energy cost. Therefore, the impact on our business is marginal.

PXIL has been providing uninterrupted services to all its customers during the lockdowns. The Exchange is committed to continue supporting its customers and provide assistance in alleviating the difficulties imposed due to the lockdown.

Sarkar of PXIL informs, “With the drop in commercial and industrial activities, the electricity demand is muted which has impacted the short-term trading volumes. Therefore, currently the purchases witnessed in the short-term market are mainly transient in nature, where DISCOMs are buying power to reduce their overall power purchase costs.”

PXIL is ensuring the availability of its transaction platform on a 24×7 basis and ensuring that customers can make most of the situation by transacting in all products seamlessly from any location, he adds.

“We would focus on further strengthening of our core business operations and critical functions to ensure business sustainability so that all the needs of our customers are satisfied,” informs Sarkar.

Due to the lockdown, ERDA will remain closed for at least 40 days. ERDA has an outstanding of more than Rs 20 crore to various states and central utilities. “This will adversely affect the cash flow and operational viability of ERDA in the short run. We are hopeful that the utilities will expeditiously pay the old outstanding to the industry as well as to ERDA as REC has already disbursed Rs 2500 crore to various utilities to pay to the suppliers of DDUJGY and Saubhagya schemes,” informs Hitesh Karandikar of ERDA. He further says that in the long run, this will help ERDA to come out of this difficult phase and continue to serve for the betterment of the Indian power sector and electrical equipment manufacturing industry.

Nearly 50 per cent of ERDA’s revenue comes from power utilities directly. ERDA is expected to be restored quickly, maybe within a month of returning to normalcy. But 50 per cent of ERDA’s business which comes from direct customers and from international market shall be severely disrupted for a longer period of time, which could be even for a year or more.

Elektrolites Power too is facing a tough time as the company is not able to dispatch the ready material because due to problems with logistics. Saboo says: “We are facing contractual issues. Manpower is not available. The lockdown will have a severe impact on cash flow.”

In order to tackle the situation post-COVID-19, Saboo says that it will take time to find the new norms for marketing after COVID-19, but we have started preparing the marketing strategy for post-COVID-19. He further adds that the company is developing on digital teamwork.

Hitachi Hi-Rel Power Electronics is one of the major solar inverter suppliers and are associated with solar projects that are operational or under development across the country. There are projects attributing to almost 37 GW which are under implementation and projects of the almost similar capacity of the solar projects are tendered last year i.e. in 2019. “This disruption in operation has brought all the project activities to a standstill, as mobilisation of material as well as the manpower has been completely disrupted,” says Shah. He adds that there have been considerable delays also in evaluation and award of ongoing tenders and that also would lead to delays in receipt of orders and also the realisation of revenues for its products, in coming few months. Shah estimates that with respect to previous year a drop of almost 25 per cent in terms of the total market potential for his range of products for FY 20-21.

As China supplies more than 80 per cent of solar raw material in India, it more or less controls the maximum value chain from silicon to ingot, wafer, module, and cell. “Now amid the Coronavirus chaos, it is believed to bring potential strain, radically impacting the national solar manufacturing market. The module assembly capacity might eventually be affected, hampering the Indian solar manufacturing industry up to a great extent,” informs Bhut.

Ashish Mangal has emphasised on the adoption of a new style of working with a changed mindset. He says: “Efficient and careful financial decisions will be the major focus and concern. Investments might take a back seat. The supply chain needs to be re-energised with stronger players.”

Strategies to make a comeback

Power industry experts have geared up to curtail the losses due to COVID 19 pandemic. Here, they reveal their plans to make a comeback with resilience. IEX has prioritised to assure distribution utilities and the nation of uninterrupted 24×7 access to its platform to support the utilities supply uninterrupted power during the crisis. “We have been working relentlessly to provide round-the-clock operations with seamless connectivity and security to enable round the clock supply,” says Mediratta.

He further adds that since the announcement of the lockdown, our platform has been seeing sell-side liquidity at 2.7 times the buy keeping the prices under check and at the lower end while simultaneously indicating that there is adequate power available in the market.

The distribution utilities have an opportunity to leverage the Exchange market to ensure 24X7 power supply to essential services, particularly, the stressed healthcare sector at the lowest possible price and supports utilities to relieve the stress on the procurement costs.

“We have also highlighted the importance of leveraging flexibility offered by our platform to ensure the adequacy of power to meet fluctuating domestic demand in current times,” informs Mediratta.

IEX has planned to focus entirely on its customers’ needs post-COVID. “Further, the Exchange will keep evolving new products. One such new market segment to pan out immediately is Real-time Market (RTM), which is scheduled for launch from 1st June,” Mediratta of IEX.

Sarkar suggests that PXIL has completely revamped its technology offering, which has allowed seamless operations to take place on a 24×7 basis even during this period of lockdown.

“On the business side, PXIL’s primary focus has been on the term-ahead and REC markets. Now, we have enough liquidity to also scale up our operations in the day-ahead spot market,” states Sarkar.

“We expect a huge surge in the liquidity on the Power Exchanges on the back of new opportunities which are on the cards in the power sector,” states Sarkar. In short to medium term, the Exchange has plans to introduce new products under categories such as Real-Time Markets, Ancillary Services and Longer Tenure Contracts that will help in deepening of power markets. “As an exchange, we are continuously pushing the boundaries and prepared to take advantage of the opportunities that the power markets present to us,” he adds.

ERDA is a not for profit scientific and industrial research organisation dedicated to the services of electrical utilities and industries. During this period ERDA remarkably supported Gujarat utilities with the urgent evaluation of equipment required to maintain continuity in the distribution of power throughout the state of Gujarat. However, ERDA took full care of the safety and security of its employees and maintained social distancing even during such emergency operation.

Karandikar informs that inspite of not generating any revenue for more than 40 days; ERDA has paid salaries and wages to all its employees before time to tide them over during this critical time. ERDA has also paid all the legitimate bills of its service contractors and suppliers on time.

ERDA has prepared a micro-planning for restarting its operations with limited but essential manpower to serve its customers efficiently. “ERDA is fully geared up to take up all the pending testing at the shortest possible time. We hope that India and the world will come out of this COVID-19 menace at the earliest and the Indian electrical industry will emerge out of these testing times stronger,” states Karandikar.

Hitachi Hi-Rel Power Electronics is utilising lockdown period to develop a post-COVID 19 business blueprint in terms of strategic workforce planning, mapping of existing and forthcoming business opportunities. “We are also focusing on sharpening the skills of our teams through their participation in various web-based training programs. We believe that with such strategic actions, we shall be fully ready to come back as soon as the situation normalises,” informs Shah.

Elektrolites Power is planning to connect with its existing customers for their new requirements as well as the development of new cost-effective projects. Saboo states that the company is reducing expenses and making a plan to sustain with lower overheads.

Dynamic Cables has given the priority to safety first. “Our entire focus to respond to this calamity is ensuring best of safety norms adhering for our associates in all plants by minimising the risk of spread of infections among employees,” emphasises Ashish Mangal of Dynamic Cables. “Meanwhile, we also have to maintain our production to help protect the operations of our customers and suppliers, the jobs of our employees and the interests of all our stakeholders,” he adds.