The Covid-19 pandemic has impacted the global economy severely. Power being one the critical inputs for productivity, a sharp fall in its demand, due to lockdowns, in most major economies of the world portends a severe weakening of the global economy. In India too, Power sector due to weakening demands for energy has become vulnerable. Although log-term impacts can be assessed with time, the short time impacts are already becoming discernible at least for India.

A strict COVID-19 lockdown throughout the country has resulted in ‘a virtually complete shutdown, of all except designated essential commercial activities in the country. Consequently, the electricity demand from industrial and, commercial customers declined sharply while the residential demand is expected to have increased. This differential has a significance for the power sector economy as Electricity Regulatory authorities in India ensure that distribution utilities have a lower tariff for domestic and agricultural consumers, sometimes even below the average cost of supply, as compared to that for commercial and industrial consumers.

When the lockdown began in the month of March, the demand for power was already soft as according to analysts, the demand had gone up only by 1.5 per cent during the first 11 months of 2019-20. Most of the impact of the decline in demand is being borne by coal-based plants. According to reports. generation from thermal plants fell 40 per cent year-on-year (YoY) between March 25 and March 30.

         Notwithstanding several steps taken by the government of India, the lockdown poses a serious challenge for the power sector in India as well as globally. The impact on the power sector came in terms of its financial models. For example, in thermal power sector, normally, the generating companies are required to pay in advance to procure inputs like coal and to wait through a gap of round 60 – 90 days to recover the money from Discom, the distribution utilities. It is not an India specific development. Worldwide, Utilities across the globe are already taking measures to include or maximise renewables in their energy mix.  Gas based generation plants are also set to take hit.

According to the data from the Power System Operation Corporation of India (POSOCO), which is tasked with managing and keeping track of load despatches, the supply on March 16 i.e. before the lockdown was to the tune of  3494 MU as against 3113 MU on the day of Janata curfew (March 23 , 2020). The average supply further reduced to a range between 2600-2800 MU between March 25 to March 31 and stood on 30th April, at 2955 MU. As mentioned, ever since lockdown has been declared, there has been significant drop in the industrial, commercial and other economic activity in the country leading to an unprecedented fall in peak demand from 170 GW to 125 GW (27%).  While the share of consumers paying higher tariffs and cross-subsidising the domestic and agricultural consumers has significantly come down due to people confining themselves to home and doing work-from-home, domestic consumption has gone up significantly.  The impact of the above fall in demand and change in its composition is a double whammy for the distribution Utilities.  Their average cost per unit of supply increases since the capacity charges payable to the generators or transmission charges payable to the transmission utilities are now to be recovered over a reduced number of units, whereas their average revenue per unit electricity supplied would reduce due to fall in the industrial and commercial demand. Ballpark estimate show that by the time lockdown will be lifted, tariff dues to be recovered will be over ₹100000/- Crores.

Ministry of Power, recognising that Discoms will be in deep red, has passed a direction  under Section 107 and 108 of Electricity Act 2003 to Central Electricity Regulatory Commission (CERC ) and State Regulators to waive off or reduce the late payment surcharge (LPS) under Power Purchase Agreements (PPAs).  The MOP has also issued directions for a reduction of 50% in the Letter of Credit (LC) limit required to be maintained by Discoms while scheduling power.

India, despite a push for renewable, is heavily dependent on fossil power plants to the extent that in total electric mix, its share is as high as 65%. Plant load factor of thermal plants has reduced to around 57%, after the impact of Covid-19.  Coal India Limited produced on an average 1.34 million tonnes during first 22 days of April’ 20 as compared to 1.51 million tonnes per day in April’19, down 11.3%

As far as the renewable operating plants, the Ministry of New and Renewable Energy (MNRE) has insisted on protecting the ‘must run’ status and rejected any claim by Discoms of force majeure under PPAs on account of lack of finance or funds.  The MNRE has been proactively supporting RE developers by seeking shareholders inputs and addressing the challenges being faced by them.  The decision would help developers to tide over this period of crisis and build a sentiment during the tough time.  MNRE has granted a 30 day blanket extension beyond the lockdown period for RE projects and added that all its RE implementing agencies would treat lockdown as force majeure due to Covid-19; case to case extension is not required and no need for any evidence to grant extension. RE implementing agencies are pleading for a longer period of 90 to 120 days. However, COVID-19 pandemic is a wakeup call for domestic solar industry as it is heavily dependent on imports, but domestic manufacturing can be sustained only if there is profitability. As much as 80% of the demand for solar cells and modules are met from imports from China.  But setting up of manufacturing facilities in India must be a long-term business proposition.

 The Power sector, in general, has been struggling with its financial management, the power sector in India has been suffering on account of payment delays by the State Discoms leading to  bankruptcy of large generation capacities. Now the challenges from the pandemic and the consequent nationwide lockdown are unique and devastating and are threatening to push already moribund sector over the edge. The Lockdown has precipitated the situation aggressively. The sector has been demanding financial support to mitigate its constraints in this sphere. There is an urgent need to think of a stimulus to the Power sector as it must return to its pre-lockdown productivity soon and sustain the momentum to ensure a speedy recovery of India’s story of economic growth.  Already the Chief Minister, Punjab has written to the centre in this regard. The government of India may include the following suggestions among others under its consideration.

These are: a) Extension of the benefit of TLRO to the PFC & REC may be extended the benefit of TLTRO ;

b) Approaching multilateral agencies for grants or loan with longer moratorium period at low interest rates for project funding or working capital;

c) Permitting performing entities to raise tax free bonds with longer tenure;

d) Permitting PFC & REC to approach LIC & EPFO to raise economical funds;

e) Permitting  Discoms to establish Joint Ventures with Central PSUs and

f)  Harmonisation of tariffs charged by ‘Discoms’ to cover fixed and variable costs, genuinely rather than leaning towards unit of power supplied.