Overview
The power industry is an essential sector of the Indian economy. Sustainable Development Goal ensures access to reliable and sustainable modern energy for all and is a significant approach to the overall development of a nation. But due to the implementation of the COVID-19 lockdown from March 2020, the total power supply sector saw a decrease of 25%. As compared to 2019, the months of January and February in 2020 had seen an increase of 3% and 7% in the power supply.
● Percentage change in power supply position between 1st March 2019 and 19th April 2020:
Sources: Daily Reports; POSOCO; PRS.
In the year 2019, 41% of the total power supply was consumed by the industries followed by 25% for domestic and 18% for agricultural purposes. As the lockdown has immensely reduced the industrial activities the demand for electricity supply has fallen drastically. However, the demand for the domestic segment has increased over time as people are bound to stay home.
The International Energy Agency (IEA) estimates that global electricity demand has reduced by 2.5% in Q1 2020, and forecasts a 5% contraction by the end of the year.
India’s Top 3 Power Sectors
● NTPC Limited: It has a total installed capacity of 62910 MW, along with 70 Power stations containing 24 Coal, 7 combined cycle Gas/Liquid Fuel, 1 Hydro, 13 Renewables along with 25 Subsidiary & JV Power Stations. NTPC has also declared to add 10 GW of solar energy capacity by 2022. Its plan is to become a 130 GW company by 2032 with 30% non-fossil fuel or renewable energy capability.
● Adani Group: It holds 14 GW of thermal capacity and firm Adani Green Energy Limited is its huge drive into renewable energy. AGEL had an entire renewable capacity of 2,595 MW for the first quarter of 2021.
● Tata Group’s Tata Power: It is the third-largest power producer and 105-year-old firm that has an installed capacity of 12,742 MW. With clean and green renewable energy assets including solar and wind estimating for 36% of the company’s portfolio at 3883 MW, This has 932 MW Wind, & 1705 MW Solar. It has also opened up possibilities in solar pumps, besides solar microgrids where its firm – TP Renewable Microgrid Limited (TPRML), in partnership with the Rockefeller Foundation is the world’s largest microgrid developer and operator.
COVID-19 impact on the Indian Power Generation Industry
As the lockdown continues, the power sector in India has seen reduced coal power
generation leading to a decreased rate from an average of 72.5% to 65.6% in 2020.
● Due to the renewable energy sources (solar, wind, and small hydro) have MUST RUN status, i.e., the power generated by them has to be given the highest priority by distribution companies, and running cost of renewable power plants is lower as compared to thermal power plants the coal power plants are suffering a major loss.
● If the demand for electricity falls then its impact will be noticed most on the coal power generating plants as 87% of the domestic coal production is used by these power sector industries.
Source: Statista
● India’s total capacity addition target is approximately 176 GW for 2017-2022, as per the National Electricity Plan. This contains 118 GW from renewable sources, 6.8 GW from hydro sources, and 6.4 GW from coal. By 2022, India has planned of installing 175 GW of Renewable Power Capacity as a part of its climate change initiatives.
● The power generation mix has changed in 2020 where electricity supply from thermal power sources increased by 10% while renewable sources declined by 16%. Aggregate Technical and Commercial (AT&C) losses in India stand at 19.01 percent. The country’s regular power demand has reduced by 25 to 28 percent since the nationwide lockdown, mainly due to the industrial and commercial activities closures.
● As per the Confederation of Indian Industry (CII), the lockdown until 3 May 2020 could result in total demand compression of approximately 33 to 36 billion units of electricity, implying a net revenue loss of Rs 25,000 to Rs 30,000 crores at the discom level. During this crisis, renewable energy has proven to be more resilient in comparison to conventional energy.
In the last 3 years, domestic electricity generation has fallen 14 GW from that of July
2017.
● Thermal energy sources that hold 60% of India’s electricity generation have reduced leading to the overall decline in the expansion of generation capacity.
● However, there has been a sustained increase in renewable energy sources, which has come to account for nearly 24% (or 88 GW) of the overall installed capacity, a 2% increase from the last year.
● According to the new 2020 Global Photovoltaic (PV) Demand Forecast by IHS Markit global solar installations will continue growth rates in the future ahead, new annual installations in 2020 will reach 142 GW a 14% rise.
● The increase in renewable energy generation capacity is being driven by solar power which has grown 17% in July 2020 along with the solar power generation capacity to 35 GW.
● Wind power holding the largest share in renewable energy generation capacity at 38 GW added 1 GW to capacity in the previous year.
Central Government’s initiative for state DISCOMS:
● Since March 2020 the fall in power demand due to the impact of the COVID -19 outbreak has caused financial stress for the DISCOMS.
● As per the data from PRAAPTI, outstanding dues owed by DISCOMs to power generators rose to Rs. 1.19 lakh crores in June 2020, which is 63% higher than June 2019.
● The outstanding dues were the highest for the DISCOMS of Rajasthan (Rs.34,971 crores), Tamil Nadu (Rs.18,077 crores), Uttar Pradesh (Rs.13,694 crores), Maharashtra (Rs.11,399 crores), Telangana (Rs.7,180 crores), Karnataka (Rs.6,393 crores) and Jammu & Kashmir (Rs.5,865 crores). The DISCOMs of these states had 82% of the total outstanding dues owed to the power generators.
● In May 2020 the central government to provide some relief to the financially stressed state of the DISCOMS had announced a special economic package where they would offer loans. This initiative was taken by the central government as a part of the Covid-19 relief.
● 67% of the loans were sanctioned at the end of July 2020 to several state DISCOMS by PFC (Power Finance Corporation) and REC (Rural Electrification Corporation) as a part of the Rs.90,000 crores liquidity injection to state DISCOMS in the form of state-guaranteed loans (to be equally funded by PFC and REC) under the liquidity infusion package. This would support the state DISCOMS to clear their dues and restart the cash-flow cycle of the power sector.
● Ujjwal Discom Assurance Yojana (UDAY), the Government of India’s (GoI) investment support plan for the distribution sector, worth Rs 2.5 lakh crore, has not taken off due to the financial instability. This plan is beneficial for transforming utility operations i.e., focusing around smart meters, enterprise resource planning systems, and metering, billing and collection systems, etc.
Source: Examrace
● Among the other states provided with a state-guaranteed loan, Uttar Pradesh’s DISCOMs
have sought the highest quantum of loans from PFC and REC at around Rs.21,000 crores.
● Some other major borrowers are Telangana, Karnataka, Andhra Pradesh, Maharashtra, Punjab, Rajasthan, and Jammu & Kashmir.
● The government has also taken measures in time extension for completion of projects i.e., 5 months extensions for renewable energy projects under implementation on the date of lockdown. In the long run, the thermal power sector would be positively impacted by these measures.
Improve in demand
● Since the beginning of the lockdown, there has been an increase in demand for domestic electricity. In July 2020 the demand was 6.5% higher than in June 2020.
● The country’s energy demand from April to July 2020 was 13% lower on an annualized basis. Similarly, the peak power demand during these 4 months at 171 GW was 7% lower year-on-year.
● The energy deficit has been lower at 0.17% v/s 0.24% for the previous year. In the case of regional demand, consumption during July 2020 was led by the northern region along with the western and southern regions. All three regions saw a 13% demand increase.
● The energy demand showed a 2.9% improvement over May 2020 as per the India Ratings and Research.
Outlook
The sustainability of the fiscal condition at this highly vulnerable state would cause the contraction of electricity generation demand as a whole. With the gradual commencement of industrial and commercial activities, the power sector is seen to be recovering from the loss suffered. As per the ICRA rating agency, demand for electricity generation in rural areas has improved to about 98% of the pre-COVID-19 level in August 2020. On the other hand, the peak demand recovered from 133 GW from April 2020 to 171 GW in July 2020.