India’s Electricity Demand to Shrink 1%, Discoms Losses to Rise by Rs 200 Bn: ICRA

Amidst the lockdown imposed across the country due to coronavirus, the demand slowdown is likely to lead to a de-growth of 1.0 percent in electricity demand for the full year of FY2021, as predicted by a leading credit rating agency, ICRA.

The rating agency analysed after considering the full lockdown till May 3, 2020, partial lifting of lockdown in the non-red zones in May and June 2020 and resumption of full operations by industrial and commercial establishments from July 2020 which is a base case scenario.”

The imposition on lockdown has adversely impacted the electricity demand and the average thermal PLF since March 24, 2020.

On further explaining the scenario, Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings, ICRA, said that “any extension in the lockdown period would have further downside risk for the demand growth. The decline in demand is expected to suppress the thermal PLF on an all India level to about 54 percent in FY2021 against our earlier estimate of 60 percent and from about 56 percent in FY2020. This would further delay the resolution of stressed thermal assets, a majority of which are impacted by a lack of long-term power purchase agreements (PPAs).”

The report further raised concern that the revenues and cash collections for the power distribution utilities (Discoms) are adversely impacted, especially given the consumption decline from the high tariff paying industrial and commercial (C&I) consumers along with likely delays in cash collections from other consumer segments.

Resultantly, this is likely to increase the book loss level for Discoms at all India level by Rs 200 billion in FY2021, with further downside risks arising from any extension in the lockdown period and any delay in issuance of tariff orders or inadequate tariffs approved by the state electricity regulatory commissions (SERCs), it further added.

While suggesting the government, Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings, commented that “this would aggravate the payment delays from Discoms to power generation companies, which are already reeling under large payment dues of more than Rs 920 billion as of February 2020. In this context, the timely and adequate liquidity support from the respective state governments, including the payment of regular agriculture subsidy, remains extremely crucial.”

Moreover, ICRA has revised the outlook on the long-term rating for 2 state distribution utilities, considering the impact on their liquidity profile. It said that the impact on the lockdown is more prominent on the performance of state distribution utilities.

Additionally, the credit rating agency has also predicted that the capacity addition in the wind and solar segments together is likely to lower by about 25 percent to 8 GW against earlier estimates of 11 GW for FY2021, considering the lockdown will impact project implementation in Q1 FY2021 and assuming normalcy thereafter.