Lockdowns spell a downside risk for electricity demand growth in FY2022: ICRA

Our Bureau Hyderabad | Updated on April 29, 2021

Thermal power among most affected segments

The lockdown restrictions across many states in the country amid the second wave of Covid-19 infections, could adversely impact the electricity demand growth prospects in FY2022.

As per the Power System Operation Corporation Limited (POSOCO) data for April 1-25 , the electricity demand is higher by 40.4% on a Y-o-Y basis, considering the favourable base effect, due to the impact of the all-India lockdown on electricity demand in April 2020.

However, the average daily demand has slowed down from 4,071 million units (MUs) (Y-o-Y growth of 48%) during the first 10 days of April 2021 to 3,923 MUs (Y-o-Y growth of 35%) during the subsequent 15 days, considering the surge in Covid cases and consequent restrictionsthat were imposed by various state governments.

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Sabyasachi Majumdar, Group Head & Senior Vice-President, Corporate ratings, ICRA, said: “A prolonged second wave of Covid-19 infections and its impact on demand, particularly from the commercial & industrial segment in key industrialised states, remains a key downside risk for our earlier forecast of 6-7% growth in electricity demand in FY2022.”

Thermal PLF drops

The impact of a lower demand growth would be more pronounced on the thermal generation and distribution segments.

The all-India thermal PLF declined to 54.5% in FY2021 from 56.0% in FY2020, given the decline in electricity demand. While the PLF was expected to improve to 58.0% in FY2022 on the back of the recovery in demand growth, the PLF levels continue to be subdued. Also, a large portion of the private IPP capacity (20 GW) is exposed to volume and pricing risks in the short-term market.

While the spot power tariffs on the Indian Energy Exchange witnessed a recovery reaching ₹4.1 per unit in March 2021 from less than ₹3.0 per unit in 9M FY2021, the prices have slightly moderated to ₹3.7 per unit in April 2021. The spot power tariffs are likely to remain in the range of ₹.3.0 – 3.5 per unit in the near term.

Given the subdued thermal PLFs, lack of visibility in signing of new power purchase agreements (PPAs) for thermal IPPs and modest tariffs in the short-term power market, the credit outlook for the private thermal power segment remains negative.

Girishkumar Kadam, Co-Group Head & Vice President - Corporate Ratings, ICRA, adds: “The lockdown restrictions could impact the demand and collections for the power distribution segment, mainly from the high tariff-paying customers. This could also delay the issuance of tariff orders and tariff revisions for the state distribution utilities.”

On the other hand, the impact is likely to be relatively low for the renewable IPPs, given the must-run status for these plants.

Published on April 29, 2021

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