Power cos may suffer severe contraction in electricity demand this year; recovery still a far-flung hope

India’s power sector performance is expected to see a significant decline in 2020-21, due to the prolonged disruptions caused by the coronavirus pandemic.

power demand, electricity, electricity usage, discoms

Even as Prime Minister Narendra Modi refers to the recovering power demand as a sign of economic revival, the power companies are likely to face strong headwinds in the year ahead as well. India’s power sector performance is expected to see a significant decline in 2020-21, due to the prolonged disruptions caused by the coronavirus pandemic, said a report by Care Ratings. The easing of the lockdown and resumption of economic activity could lead to an improvement in electricity demand, however, there will not be a significant increase as the resumption of activity is expected to be gradual and limited, the report added. 

The expected yearly contraction in the power demand is largely attributed to the weak industrial and commercial activity as the commercial and industrial sector accounts for a major portion of the overall electricity demand. Though electricity generation did not come under the ambit of lockdown, it was dramatically hit due to disrupted supply chain in the month of April and May. Consequently, the electricity demand and generation fell to a 5-year low during April – May 2020.

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Besides the power generation company, the distribution companies are also burdened with cash crush. The financial profile of the state distribution companies is also strained, mostly due to the high transmission and distribution losses and the outstanding dues of DISCOMS, which have increased in recent months. The absence of cost-reflective tariffs, rising operational expenditure, high AT&C losses, and delays in receipt of subsidy from the government have been weighing down the finances of discoms over time, according to Care Ratings.

Meanwhile, India has sufficient capacity to generate surplus power but the low capacity utilisation in the country has kept the power firms away from profit-making. India’s installed power generation capacity as of May 2020 is at 370.5 GW, which is 3.8 per cent higher than the same period a year ago. The addition in installed capacity was largely led by renewable energy sources, which surged 11.5 per cent on-year to 87 GW. Within the green energy, capacity under solar power rose by 22 per cent on-year in the month of May.

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