Electricity Demand in India to Shrink by 5-6% in FY21 due to COVID: ICRA

With the re-imposition of lockdown restrictions in many parts across the country, the all India electricity demand is likely to decline by 5 to 6% in FY2021

With the re-imposition of lockdown restrictions in many parts across the country, the all India electricity demand is likely to decline by 5 percent to 6 percent in FY2021 over FY2020, against ICRA’s earlier estimate of 1 percent de-growth made in April 2020.

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The revised energy demand de-growth estimate assumes a demand decline of 3.5 – 4.0 percent in Q2 and Q3 FY2021 and a marginal recovery of about 1.0 percent in Q4 FY2021, given the slower pace of recovery expected in industrial and commercial activity in the country. This in turn is expected to suppress the thermal PLF on an all India level to about 50-51 percent in FY2021 against rating agency’s earlier estimate of 54 percent and from 56 percent in FY2020.

The all India electricity demand declined by 16.2 percent in Q1 FY2021 on a year-on-year (Y-o-Y) basis, because of the lockdown imposed to control the COVID-19 pandemic. While the demand recovered from a Y-o-Y decline of 23.1 percent in April 2020 to 10.9 percent in June 2020 and further to 3.9 percent in the first 15 days of July 2020, the recovery was slower than earlier expectations of reaching a pre-COVID-19 level in July 2020.

Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings, ICRA, said, “the decline in energy demand has thus adversely impacted the revenues and cash collections for the power distribution utilities (Discoms), especially given that the bulk of the consumption decline has come from the high tariff paying industrial and commercial consumers; and given the delays in cash collections from other consumer segments.

“The consequent revenue gap for the Discoms at all India level is estimated to increase further to about Rs 420-450 billion in FY2021 against our earlier estimate of Rs 200 billion. The recovery of this revenue gap, if allowed through regulatory asset (RA) by State Electricity Regulatory Commissions (SERCs) would require a tariff hike of 2.5 – 3.0 percent at an all India level, assuming recovery of RA over a three-year period. As a result, timely implementation of such tariff hike by the respective state regulators for recovery of such revenue gap remains extremely critical for Discoms.”

Given the adverse impact of COVID-19 on Discom finances, the Government of India has announced liquidity support of Rs 900 billion for the state power discoms, in the form of loans against receivables, from Power Financial Corporation (PFC) and Rural Electrification Corporation (REC). However, there has been slow progress in off-taking these loans so far; timely implementation of this scheme remains important to clear the outstanding dues to power generating companies, which stand at Rs 1.17 trillion as of May 2020.

“ The overall debt on the books of state-owned Discoms at an all India level as of March 2019 has crossed the pre-UDAY level and is now expected to further rise with the implementation of liquidity relief scheme being availed through long tenure debt funding from PFC & REC, mainly to meet the overdues as on March 2020, as well as the possibility of availing an incremental debt to fund the revenue gap estimated in FY2021, adds Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings.

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Ayush Verma

Ayush is a staff writer at saurenergy.com and writes on renewable energy with a special focus on solar and wind. Prior to this, as an engineering graduate trying to find his niche in the energy journalism segment, he worked as a correspondent for iamrenew.com.