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Home / News / India /  Power demand to shrink 3-4% this fiscal as states return to lockdown: ICRA

MUMBAI : With the re-imposition of lockdown restrictions in many parts across the country, the all India electricity demand is likely to decline by 5% to 6% in FY21 over FY20, against an earlier estimate of 1% made in April 2020, a report by credit ratings agency ICRA said. The revised energy demand estimate assumes demand decline of 3.5 – 4% in Q2 and Q3 FY2021 and a marginal recovery of about 1% in Q4 FY2021, given the slower pace of recovery expected in industrial and commercial activity in the country.

Power generators will see their plant load factors (PLFs) falling as a result. ICRA estimated that the fall in demand will supress the thermal PLF on an all India level to about 50-51% in FY2021 against the agency’s earlier estimate of 54% and actual PLF of 56% in FY2020. The all India electricity demand declined by 16.2% in Q1 FY2021 on a year-on-year (Y-o-Y) basis, because of the lockdown imposed to control the Covid-19 pandemic.

“The decline in energy demand has adversely impacted the revenues and cash collections for the power distribution utilities (discoms), especially given that the bulk of the consumption decline has come from the high tariff paying industrial and commercial consumers; and given the delays in cash collections from other consumer segments," Sabyasachi Majumdar, Group Head & Senior Vice President - Corporate ratings, ICRA, said. “The consequent revenue gap for the discoms at all India level is estimated to increase further to about 420-450 billion in FY2021 against our earlier estimate of Rs. 200 billion. The recovery of this revenue gap, if allowed through regulatory asset (RA) by State Electricity Regulatory Commissions (SERCs) would require a tariff hike of 2.5 – 3% at an all India level, assuming recovery of RA over a three-year period. As a result, timely implementation of such tariff hike by the respective state regulators for recovery of such revenue gap remains extremely critical for discoms."

Given the adverse impact of covid-19 on discom finances, the central government announced liquidity support of 900 billion for the state power discoms, in the form of loans against receivables, from Power Financial Corporation (PFC) and Rural Electrification Corporation (REC). However, there has been slow progress in off-taking these loans so far; timely implementation of this scheme remains important to clear the outstanding dues to power generating companies, which stand at Rs. 1.17 trillion as of May 2020.

“The overall debt on the books of state owned discoms at an all India level as of March 2019 has crossed the pre-UDAY level and is now expected to further rise with the implementation of liquidity relief scheme being availed through long tenure debt funding from PFC & REC, mainly to meet the overdues as on March 2020, as well as the possibility of availing an incremental debt to fund the revenue gap estimated in FY2021," Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings, said.

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