The all-India electricity demand during financial year 2021 is likely to decline by about 1 per cent due to the coronavirus pandemic and the lockdown in its wake.

According to a power sector update by rating firm ICRA, the power distribution companies (Discoms) in the country are likely to take a ₹20,000-crore loss and are exposed to other possible downsides from any extension of the lockdown.

Outlining the power sector outlook at a web conference, ICRA researchers stated that thermal PLF is likely to decline to 54 per cent in FY2021 against 56 per cent in FY2020 in a base-case scenario.

The imposition of lockdown to check Covid-19 has adversely impacted electricity demand and the average thermal PLF since March 24, 2020.

The demand slowdown amid the lockdown are likely to lead to de-growth of about 1 per cent in electricity demand for FY2021. This is considering the lockdown is till May 3, 2020 and 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.

Downside risk for demand growth

Sabyasachi Majumdar, Group Head & Senior Vice-President-Corporate ratings, ICRA, said, “Any extension in the lockdown period will have further downside risk for demand growth. The decline in demand is expected to suppress the thermal plant load factor (PLF) on an all-India level to about 54 per cent in FY2021 against our earlier estimate of 60 per cent and from about 56 per cent in FY2020.”

Significantly, he felt, “This will further delay the resolution of stressed thermal assets, a majority of which are impacted by lack of long-term power purchase agreements (PPAs).”

The lockdown, according to ICRA, has adversely impacted revenues and cash collections for the power distribution companies due to the consumption decline from the high tariff paying industrial and commercial consumers and the likely delays in cash collections from other consumer segments.

This situation is likely to increase the book loss level for discoms at all-India level by ₹20,000 crore 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.

Payment delays

During the presentation, Girishkumar Kadam, Sector Head & Vice-President, ICRA Ratings, said, “This will aggravate the payment delays from discoms to power generation companies, which are already reeling under large payment dues of more than ₹92,000 crore as of February 2020. Timely and adequate liquidity support from the respective State governments, including the payment of regular agriculture subsidy, remains extremely crucial.”

While the ongoing lockdown adversely impacting the finances of the discoms heightens the counter-party credit risks for ICRA-rated portfolio in the power sector, the credit profile of ICRA-rated power generation entities in the investment grade is supported by the availability of liquidity buffer in the form of debt service reserve and undrawn working capital limits.

The rating agency would continue to monitor the impact of lockdown on the receivable position for its rated portfolio. The impact on the lockdown is more prominent on the performance of the state distribution utilities, and therefore the outlook on the long-term rating for two state distribution utilities, considering the impact on liquidity profile, has been revised.

Renewables scene

The under-construction renewable power projects are likely to face delays in execution because of disruption in supply chain in India and labour availability, following the lockdown.

The Union Ministry of New and Renewable Energy (MNRE) notification of time extension of lockdown period plus 30 days for all renewable energy projects is timely. This comes under the force majeure clause.

Given that the lockdown would impact project implementation in Q1 FY2021 and assuming normalcy thereafter, capacity addition in the wind and solar segments together is likely to be lower by about 25 per cent at 8 GW against earlier estimates of 11 GW for FY2021.