As Power Demand Slumps, RE Generators Brace For Impact

The coronavirus pandemic has created some of the most unprecedented situations ever faced by the energy sector in India. For one, demand has never dropped off as steeply as it has in March. For possibly the first time ever in living memory, a slump in global oil prices has stopped delivering any revenue benefits to the government, despite record taxes on the fuel. Again, due to vanishing demand.

The term Force Majeure is suddenly the  term being heard the most, after decades of being a forgotten part of all agreements. The clause, which refers to the impact of unprecedented natural calamities or similar such situations   to cause a rupture on signed contracts, is today being quoted by everyone, from buyers to sellers, to walk away from commitments.

Electricity demand is estimated to have dropped by almost 30 percent. That extraordinary situation is bound to have repurcussions for the renewable energy sector, that was already fighting threats of power curtailment (buying lesser power than committed by discoms) and payment delays. Efforts made as recently as January to clear out past dues have already been sacrificed to the urgency of the situation, with the government allowing discoms a 3 month moratorium on any payment risks.

RK Singh, the Power Minister has already approved major relief measures for power sector that include a guarantee of power supply to discoms irrespective of their outstandings status, a reduction by 50 percent of the payments security mechanism that was created for discoms to pay on time, right upto May 31. Even the Central Electricity Regulator has been told to provide a three month moratorium to discoms on late payments, a message that states have also been encouraged to send to state regulators.

In States like Maharashtra, the State Regulatory Commission has also placed a moratorium on payment of fixed charges of the electricity bill by consumers under Industrial and Commercial category for next three billing cycles beginning from the lockdown date of 25/3/2020. A move that is likely to be replicated more widely.

Interestingly, a major developer we spoke to, with over 1 GW renewable portfolio, stresses that renewable energy is the last one that should be impacted, if common sense is followed. ” Power demand has fallen by a large enough factor to make the actual shut down of some base load stations a possibility, without disrupting the grid. Any amount of renewable energy, even if intermittent, can be handled far more easily by grids than in a situation of high demand. “

Many discoms, who have cited PPA commitments with thermal power producers  had earlier cited those to look at curtailing their purchases from renewable energy generators. Those discoms will now have a chance to test the limits of the options available to them.

Beyond renewable energy, as storage fills up, even oil marketing firms are invoking force majeure to defer fresh deliveries of crude oil, and reduce their plant run rates to 50 percent and less, as seems likely.

The ‘gas grid’ is already under threat, for similar reasons. GAIL, the largest player in gas distribution, is already scrambling to defer deliveries.

All hopes will now be on the situation by April 14, when the current lockdown is supposed to end. There is an increasing consensus that further lockdowns cannot be ruled out, despite the Cabinet secretary’s recent assertion that no such plan is on the table yet. However, what is also becoming obvious is the need to restart pats of the economy, as the current definition of essential is clearly not good enough to prevent a deeper slump.

Update: In a late afternoon notification released by the MNRE, RE generators have been provided ‘must run’ status during the course of the lockdown.

Furthermore, considering the ‘small contribution of RE producers’ to the total power mix, discoms have also been told to continue the regular payments cycle vis a vis RE producers, as existed before the lockdown.

this was done in response to state discoms in Punjab,Andhra Pradesh, Uttar Pradesh and Madhya Pradesh serving notices on their RE generators to curtail production, and for expressing an inability to pay them. The MNRE notice is definitely welcome news, and a further sign of the focus the sector has started getting from the Power Minister finally. Now let hope that Discoms get the message too.