Covid-19 lockdown to impact electricity demand, cash flows for discoms: ICRA

The lockdown announced to control the Covid-19 pandemic has effected an adverse impact on electricity demand and cash flows of Distribution companies (Discoms).

The shutdown has impacted the industrial and commercial establishments and stoppage of passenger railway services. This has hit the electricity demand, given that these segments constitute about 40 per cent of the all-India electricity demand, according to rating agency ICRA.

These segments account for a greater percentage of the discoms’ sales revenues given that they are the subsidising segments.

Sabyasachi Majumdar, Group Head & Senior Vice President-Corporate ratings, ICRA, says, “The lockdown is likely to adversely impact the all-India electricity demand, with demand expected to decline by about 20-25 per cent on a year-on-year basis during the period of lockdown.”

“This would in turn adversely impact the liquidity profile of the discoms, increase their subsidy requirement and lead to delays in payments to the power generation and transmission companies.”

The Union Ministry of Power has issued directions to the Central Electricity Regulatory Commission to provide a moratorium of three months to discoms. The power generation companies are already suffering delays in payments by discoms across most of the States, with a payment due of more than ₹85,000 crore as of November 2019 at all-India level.

However, the timely approval of the moratorium by the boards of the banks and financial institutions remains crucial.

The average monthly thermal PLF would further dip to 50-52 per cent against 63 per cent in the corresponding period of previous year, due to a considerable drop in demand.

Renewables too hit

This apart, the under-construction renewable power projects as well as EPC/OEM companies in solar segment are likely to face execution delays because of disruption in supply chain in India and labour availability, following the lockdown.

Given the import dependency on China for sourcing of PV modules, the execution timelines for the ongoing solar projects is likely to be affected with delays in the delivery of PV modules following the outbreak of Covid-19 in China.

This delay will increase the pre-operative expenses and the overall project cost, which, in turn, would affect the expected returns. In this context, the MNRE has notified that time extension can be provided for all renewable energy projects, which are impacted by the supply chain disruption, under the force majeure clause.

“Given the execution headwinds amid Covid-19 affecting Q1 of FY2020-21 and assuming the normalcy thereafter, the capacity addition in the wind and solar segments together is likely to degrow by about 25 per cent, thus estimated at about 8 GW against earlier estimates of 11 GW in FY2020-21,” says Girishkumar Kadam, Sector Head & Vice-President, ICRA Ratings.

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