Power Sector Update 1595419253

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MONTHLY SECTOR UPDATE

Issue| July 2020

Power Sector 1
Impact of COVID-19 on
“Energy consumption matter bot h t o our India’s Power Sector
environment and our economy.”
John Baldacci
2
India is the third largest Union Budget 2020-21 allocated News and
producer and third largest Rs 15,875 crore (US$ 2.27 billion) to Announcements
consumer of electricity in Ministry of Power and Rs 5,500
the world with installed

3
crore (US$ 786.95 million) towards
power capacity reaching the Deen Dayal Upadhyay Gram
370.49 GW Jyoti Yojana
Key Players updates
India achieved 100 per
cent household Government plans to establish
electrification by March
4
renewable energy capacity of
31, 2019, as envisaged 500 GW by 2030
under the Saubhagya
scheme
Looking Forward

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Issue| July 2020

Impact of COVID-19
The power generation and supply for a particular The econ omic impact of the lockdown was not
day are planned based on the forecast for equal across states, districts, and cities. Some of the
demand; thus, there is no large-scale storage of heterogeneity in decline in electricity consu mption is
power. India witnessed a stron g impact of the related to the econ omic stru cture of the States and
national lockdown on India's electricity prev ious migration patterns. A more significant
consumption. It dropped on an av erage of 28.5 per number of CO VID-19 infection s resu lted in a more
cent in the week after its implementation and was considerable decline in night-time light intensity in
an av erage 25.8 per cent below normal for sev eral districts, but not in the State.
following weeks. It started recov ering in early May
and was nearly back to normal between May 23 A key concern troublin g the Indian power sector has
and May 28, before d ropping again at the end of been the poor financial health of its Discoms, which
the month to -14.7 per cent on May 31. In the first 15 are managing high lev els of debt. They hav e been
days of June, a fall of 14.3 per cent was recorded, running considerable losses owing to underpricing of
while in the second half of June, electricity electricity tariff for some consu mer segments. Other
generation declined by 5.3%. This recov ery in power forms of technical and commercial losses as the loss
demand in the second half of Jun e was primarily led of rev enues due to decline in demand from
by higher con sumption by industrial regions such as commercial and industrial customers and the
Western states of Maharashtra and Gujarat, and inability to cov er the cross- subsidies prov ided to the
Delhi in the North. lower-tariff paying con sumer puts additional
pressure on the Discoms. Outstanding dues of
When it comes to the consu mption pattern by Discoms towards power generation companies
consumers of different categories, in 2018-19, 41% of hav e been increasing, indicating fu rther financial
total electricity consumption was for industrial stress in some Discoms. This could lead to reduced
purposes, while 25% and 18% was for domestic and av ailability of workin g capital for these entities, and
agricultural purposes, respectiv ely. As the lockdown an increase in the risk of NP As in the sector had the
rigorously reduced the industrial and commercial Central gov ernment not interv ened at the right
activ ities in the country, these segments witnessed a juncture. Amendments to the Electricity Act 2003
considerable decline in demand for electricity. aim to bring in bold reforms that are needed to
change the status quo. This would entail clarifying
Electricity consu mption and economic activ ity are that if subsidies are to be giv en directly to end-
closely related since most economic activ ity needs consumers, they should pay 'full cost' for electricity,
electricity. Accordin g to the World Bank, in 2019, ensuring that social welfare objectiv es are more
ev ery per cent additional economic activ ity in India direct and explicit.
led to a 0.95 per cent increase in electricity
consumption. Year-on-year quarterly growth in the Currently, the distribution companies (DISCOMs) and
first quarter of 2020 was 3.4 per cent lower than it generating companies (GENCOs) are riding on pan-
would have otherwise been. For the second quarter India rev enue losses INR30,000 crore and INR25,000
of 2020, it suggests that the n egativ e growth effect crore, respectiv ely.
until the end of May has already been 17.0 per cent.
For the full calendar year, this a mounts to economic
costs of 5.1 per cent of G VA so far, or around US$
150 billion. The actual growth in the second quarter Nilaya Varma
of 2020 will, of course, depend on whether the Co-Founder & CEO
economy will continue to be held back by the
COVID-19 pandemic, whether it will rev ert to Primus Partners
prev ious lev els, or whether it will ov ershoot to
compen sate for forgone activ ity during the
lockdown. The stren gth of the rebound can also be
well tracked by our measu re based on daily
electricity consumption.

Source:
1. Robert C. M. Beyer Sebastian Franco-Bedoya, Vir gilio Galdo, ‘Examining t he
Economic Impact
of COVID-19 in India t hrough Daily Electricit y Consumption and Nighttime Light
Int ensity’, World Bank Group, J une 2020
Issue| July 2020

News & Announcements


Key Sector Developments

Tariff Policy Reforms: for the promotion of generation of electricity


from renewable sources and to prescribe a
• Consumer Rights, minimum percentage of purchase of electricity
• DISCOM inefficiencies not to burden consumers, from renewable and hydro sources of energy. To
harmonize the national lev el commitments for
• Standards of Serv ice and associated penalties env ironment protection, it also proposes to
for DISCOMs, empower the State Commissions to specify the
• DISCOMs to ensure adequate power; load- Renewable Purchase Obligation as per RPO
shedding to be penalized, trajectory prescribed by the Central
gov ernment from time to time.
• To promote Industry,
• It proposes to establish an Electricity Contract
• Progressiv e reduction in cross subsidies, Enforcement Authority, which shall hav e the sole
authority and jurisdiction to adjudicate upon
• Time bound grant of open access,
matters regarding performance of obligations
• Generation and transmission project dev elopers under a contract related to sale, purchase, or
to be selected competitiv ely, transmission of electricity.
• Sustainability of Sector, Pan-India Real Time Market launch
• No Regulatory Assets, Minister of State for Power and New & Renewable
Energy launched pan-India Real Time Market in
• Timely payment of Gencos,
electricity in June 2020.
• DBT for subsidy; Smart prepaid meters.
Real Time Market will enable buyers and sellers pan-
Privatization of Distribution in UTs India to meet their energy requirement closer to real
time of operation and bring flexibility in the market
Power Departments / Utilities in Union Territories will be with optimum utilization of the av ailable surplus
priv atized. This will lead to better serv ice to consumers capacity in the system.
and improv ement in operational and financial
efficiency in Distribution. This will also prov ide a model RTM will be for ev ery 30 minutes a day. Buyers and
for emulation by other Utilities across the country. sellers shall hav e the option of placing bids for each
15-minute block. It will enable Discoms to access a
Electricity (Amendment) Bill 2020 larger market at competitiv e price and
A few prov isions of the Electricity Act, 2003 Act were simultaneously prov ide for generators to share the net
observ ed to be insufficient considering the rapid gains with Discoms.
dev elopment of the sector and the following key
points hav e been suggested as an Amendment to
the Act of 2003: Indo-China Energy Trade
• The Bill proposes priv atization of Discoms by way The Renewable Energy Ministry and the Power
of sub-licensing and franchisee. Ministry hav e proposed imposing customs duties on
some solar power equipment and other apparatus
• It proposes state commissions to determine tariff
starting August 1 as part of the country’s goal of
for retail sale of electricity without any subsidy
becoming self-sufficient and promoting Make-in-
under section 65 of the Act.
India.
• It proposes to empower National Load
India has in the recent days taken steps to impose
Despatch Centre to ov ersee/monitor the grid
stringent quality control measures and higher tariffs
operations, payment, and security mechanism
on goods from China as it looks to boost domestic
before scheduling dispatch of electricity. Ev ery
manufacturing to cut reliance on imports.
Regional Load Despatch Centre, State Load
Despatch Centre, licensee, generating Tightening import norms, India will check all power
company, generating station, sub-station etc. equipment bought from China for malware and
shall adhere to its mandates. Trojan horses that can be potentially used to trigger
electricity grid failures to cripple economic activ ity in
• It proposes National Renewable Energy Policy
the country.
Issue| July 2020

Key Players Updates


• On June 22, 2020, the Supreme Court of India under the Rs 90,000 crore liquidity infusion
rejected a request by power producers to package while the gov ernment is considering
extend a deadline to in stall equipment to cut relaxing working capital borrowing limit s of power
emission s by two years to 2024. The P ower plant distribution companies.
operators hav e blamed costs and technical
difficulties for missin g an earlier deadline at the • NTPC has offered learning opportunities to its
end of 2017 and then again at the end of 2019. 19,000-plus employees and their family members.
To meet the requirements of the lockdown
• Power Finance Corporation (PFC) has ended imposed due to COVID 19 pandemic, NTPC
financial year 2019-20 (Ap ril-March) on a strong Learning and Dev elopment (L&D) st rategy has
note despite nu merous challen ges including been customized for en richin g employees
outbreak of CO VID 19.The lending in stitution through intensiv e digitization and online training,
deliv ered a sound financial performance with enabling them to av ail these serv ices from
loan sanctions of more than Rs 1 lakh crore along anywhere.
with Loan Disbursements of about Rs 68,000 Crore
in the last financial year. • Bharat Heav y Electricals Limited (BHELNSE 4.67 %)
has successfully commissioned one 270 MW
• Power producers' total outstanding dues owed thermal unit at the 4x270 MW Bhadradri Th ermal
by distribution firms rose n early 63 per cent to Rs Power Project in Telangana. Located at
1.23 lakh crore in Ap ril 2020 ov er the same month Manuguru in Bhadradri Kothagudem District of
prev ious year, reflecting stress in the sector. Telangana, the project was awarded to BHEL by
Telangana State Power Generation Corporation
• Distribution companies owed a total of Rs 75,642 Limited (TSGENCO).
crore to power gen eration firms in Ap ril 2019,
according to portal PR AAPTI (Payment • According to ICRA, the prices on the power
Ratification and Analysis in Power procurement exchange market, both RTM and DAM, are
for brin ging T ransparency in Inv oicing of expected to remain subdued at less than Rs 3
generators). per unit in the near term, giv en the surplus
capacity scenario and subdued demand growth
• Republic of Mali has awarded Project expectations for the current year, with the
adv erse impact of the ongoing lockdown and
Management Consultancy contract to NTPC, a
central PSU under Ministry of Power, for restrictions imposed to control CO VID-19
pandemic.
dev elopment of 500 MW Solar Park. In an ev ent
held on 24th June 2020, chaired by the Hon’ble
Minister and Mr. H.E. Sekou Kasse, the • The Concession Agreement for the 600 MW
Ambassador of Mali, handed ov er the Project Kholongchhu (Joint Venture) Hydroelectric
Management Con sultancy award letter to Mr. Project between the Royal Gov ernment of
Gurdeep Singh, CMD NTPC, for dev elopment of Bhutan and Kholongchhu Hydro Energy Limited
500 MW Solar park in the Republic of Mali. was signed on 29 June 2020 in Thimphu, in v irtual
presence of Dr. S. Jaishankar, External Affairs
• In FY20, NTPC has recorded the highest ev er Minister, Gov ernment of India and Lyonpo Dr.
Tandi Dorji, Foreign Minister, Royal Gov ernment of
commercial capacity addition of 8260 MW which
includes acquisition of 2970 MW capacity of Bhutan.
THDC and NEEPCO. The gross generation of NTPC
Group for FY20 was 290.19 Billion units as a gainst
305.90 Billion units during the prev ious year.

• Power Finance Corp (PFC) and REC Ltd hav e


decided to offer 10-year loans to state
distribution utilities at 9.5% for the next 60 days
Issue| July 2020

Looking Forward
The 2019-20 electricity generation target of information on cash flows, obligations,
conv entional sources was determined as 1330 deferments, etc. across the chain to fully
Billion Unit (BU), a growth of ~6.46% ov er actual acknowledge the objectiv es of the measure and
conv entional generation of 1249.337 BU for the expect definite outcomes. Moreov er, just like
prev ious year. Ev en before the pandemic crisis amendments in the Electricity Act of 2003 that
Discoms in India hav e been facing tremendous introduced the con cept of open access in India,
challenges including, politicization of and poor there is a need for a National Policy encouragin g
tariff setting, failures to hav e regular con sumer rooftop installations and establishing the right of
tariff rev isions (simply to ev en match inflation, consumers to u se rooftops for self-consu med
forget risin g costs, especially of procurement of solar power. These measures will ensure stable
power), continued AT &C losses, failure to get and uniform policies in the sector, which will driv e
paid by the gov ernment (as a consu mer or for private sector inv estments in the ren ewable
promised subsidies) etc. Discoms face energy sector.
disproportional risks compared to generators and
Supporting private players in the power sector
especially transmission companies, who get paid
will offer multiple financin g solutions, in cluding
first (and make hefty returns).
working capital facilities to support temporary
Gov ernment schemes, policies and inv estments liquidity needs, refinancing existing debt to
should now align with long term targets of enhance resiliency, and long-term financing to
sustainability, cleaner power, and quality supply. support project dev elopment and construction
Post-COVID-19, states will also need to relax their in an env ironment where financing is not as
deficit spending caps under the Fiscal easily av ailable.
Responsibility and Budget Management (FRBM)
Act.
More detailed information about the INR90,000
crore package is awaited, along with

S ources:
1. Power Minist ry
2. CEA
About Primus Partners
Primus Partners has been set up to partner with clients in ‘navigating’ India, by experts with decades of
experience in doing so for large global firms. Set up on the principle of ‘Idea Realization’, it brings to bear
‘experience in action’.

‘Idea Realization’— a unique approach to examine futuristic ideas required for the growth of an
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Primus Partners brings experience of working in more than 30 countries with private and public sector,
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The founding team is supported by a distinguished advisory board that includes experts with leadership
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Abinash Chaudhary
Nilaya Varma
Vice President, Lead –
Co-Founder & CEO
Public Policy Realization

Pooja Ahluwalia Suvi Jain


Vice President, Head of Consultant, Public
Research Policy

Disclaimer
The report is prepared using information of a general nature and is not intended to address the circumstances of any
particular indiv idual or entity. The report has been prepared from various public sources and the infor mation received
from these sources is believed to be reliable. The information available in the report is selective and subject to
updation, revis ion and amendment. While the infor mation prov ided herein is believed to be accurate and reliable,
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or completeness of such infor mation and data available in the public domain. While due care has been taken w hile
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