Overall Electricity Demand Nearly at pre-Covid Levels: ICRA

The all India electricity demand is witnessing a gradual recovery and stood at 98 percent of the pre-COVID level in August 2020, finds ICRA

The all India electricity demand is witnessing a gradual recovery and stood at over 96 percent of the pre-Covid level in July 2020 and further improved to close to 98 percent of the pre-Covid level in August 2020, mainly led by a recovery in rural areas.

As per an ICRA note, the electricity demand recovery on all India level has largely been led by Northern and Eastern states with a year-on-year (Y-o-Y) increase of 6 percent – 13 percent in demand in July 2020. This was mainly driven by rural consumption, while the demand in large industrial states witnessed a 6 percent – 15 percent decline in July 2020 on a Y-o-Y basis, on back of slower recovery in industrial activity. Also, the recovery in the all India demand in August 2020 is on a lower base, considering the demand decline witnessed on a Y-o-Y basis in August 2019.

Girishkumar Kadam, Sector Head & VP, Corporate ratings at ICRA said, “the imposition of lockdown to control the Covid-19 pandemic led to a decline in the all India electricity demand by 13.1 percent in the first four months of FY2021. While the monthly demand recovered from 85 billion units (BUs) in April 2020 to 112 BUs in July 2020, it remained lower on a Y-o-Y basis.

“Also, while the peak demand recovered from 133 GW in April 2020 to 171 GW in July 2020, it remained lower by 3.3 percent compared to July 2019. This was also because of the re-imposition of lockdown restrictions in many parts across the country, due to rise in Covid-19 infections. Given the energy demand trends so far across the key states, ICRA continues to maintain its outlook for about 5-6 percent decline in the all India electricity demand in FY2021 over FY2020. The decline in demand is expected to suppress the thermal PLF on an all India level to about 50-51 percent in FY2021 against 56.0 percent in FY2020.”

The note goes on to add that the decline in demand has adversely impacted revenues and cash collections for the power distribution utilities (Discoms), especially given that the bulk of the consumption decline has come from high tariff paying industrial and commercial consumers. The consequent revenue gap for the Discoms at all India level is estimated to increase by about Rs 420-450 billion in FY2021.

In the context of the large build-up of receivables from Discoms to power generating companies and the adverse impact of the lockdown on the Discom finances, the Government of India has announced a liquidity support scheme of Rs 90,000 crore for the state Discoms, discoms, in the form of loans against receivables, from the Power Financial Corporation (PFC) and the Rural Electrification Corporation (REC). PFC and REC have so far sanctioned Rs 68,000 crore under the

scheme to clear payments to power generating companies in lieu of dues pending from the state Discoms.

“This is a positive development for the Central power utilities and IPPs impacted by the delays in receiving payments from the Discoms. For ICRA’s sample set of power generating companies, which together constitute for ~65 percent of the pending payments from discoms as of March 2020, the recovery of overdue payments from Discoms till March 2020 is estimated to lower the interest costs by ~9-10 percent on an annualised basis, assuming the payments realised under this scheme are primarily used to reduce the debt. Nonetheless, the discoms’ ability to make timely payments in a sustained manner towards the generating companies continues to remain a key monitorable, which would be dependent on the demand recovery from industrial and commercial consumers in the near term, besides the efforts to address the structural issues confronting the distribution segment.” adds Vikram V, Associate Head & Assistant VP, ICRA Ratings.

The note concludes by stating that thus, proactive efforts are required on the part of the state governments and Discoms for achieving a sustainable improvement in Discoms finances. These include timely filing of tariff petitions by Discoms to enable timely issuance of tariff orders by the regulators along with adequate tariff revisions, timely and adequate subsidy payments by the state governments and improvement in operating efficiency through a reduction in AT&C loss levels.