Most of the industrial units are either shut or operating at a fraction of their capacity, due to Covid-19 led nationwide lockdown.
One consequence is that demand for electricity has fallen sharply, hitting a five-month low on just the first day of the national lockdown.
Why is there such a fall in demand?
Industrial demand, together with the off take from Indian Railways (passenger services have been suspended) constitutes 40% of national power demand.
The other issue is that the industrial segment of the market is the paying section, which helps cross-subsidise domestic power consumption.
What is bad with the timing?
These issues comes at a bad time for electricity distribution companies (discoms) which owe over Rs 80,000 crore to generation companies.
The number of consumers not able to pay their power dues will increase in this period, further hampering the discoms’ liquidity situation.
If discoms are unable to buy power from generation companies, there is a real possibility of widespread load shedding.
This would hamper the output of those working from home and might have serious public-health effects if hospitals, quarantine centres, etc., find themselves without power to run lifesaving equipment.
What did the government do?
The government has stepped in to improve the situation by announcing a package targeted at the power sector. This would include,
A moratorium on debt repayment for 3 months,
An instruction to the generating companies that they should continue to supply to discoms and
Relaxation of the payment security mechanisms built into newer power-purchase agreements (PPAs).
This might help manage the situation for some time. Yet both on a temporary and on a permanent basis, a more solid solution is needed.
What sectors will be affected?
India’s fragile banking sector is over-exposed to the power sector.
So, a breakdown here will have severe effects on the broader economy and cripple India’s recovery from the sudden stop imposed by the national lockdown.
Also suffering is a part of the power sector - the renewable energy sector.
Capacity addition in the sector has been hit by a double setback.
What are the two setbacks?
There isan interruption in the supply of new components, that depends upon global supply chains.
This has affected the speed of capacity build-up as well as the financial indicators of the sector.
Scarcityof dollars for emerging-market companies at the moment means that the renewables sector is having trouble raising money and repaying its debts.
This section of the power sector requires special attention, given the government’s ambitious targets.
What could be done?
The Union government could shell out the money required to
Guarantee the revenue flow for renewables and
Buy out the power-purchase agreements attached to older and less efficient and environmentally-friendly generators.
This will free discoms to make newer and more sensible PPAs, which will have to be backed by the state government’s own guarantees.
