Impact of Covid-19 On Energy Sector in India

IMPACT OF COVID-19 ON ENERGY
SECTOR IN INDIA
HEMANG SINGH
17BBA022
RESEARCH QUESTIONS
 1. How has the Covid-19 pandemic affected various energy sectors?

 2. What are the major disruptions in the electricity sector and impact on the
distributing companies (discoms)?
 How has the government responded to combat the effects of Covid-19 on the
energy sector?: Discussing Measures and Policies
INTRODUCTION
 The central government has enforced a nation-wide lockdown between March

25 and May 3 as part of its measures to contain the spread of COVID-19.
During the lockdown, several restrictions have been placed on the movement
of individuals and economic activities have come to a halt barring the
activities related to essential goods and services.
 We are now going to look at how the lockdown has impacted the demand and
supply of electricity and what possible repercussions its prolonged effect may
have on the power sector.
Power supply saw a decrease of 25%
during the lockdown
 As electricity cannot be stored in large amount, the power generation and supply
for a given day are planned based on the forecast for demand. The months of
January and February in 2020 had seen an increase of 3% and 7% in power supply,
respectively as compared to 2019 (year-on-year). In comparison, the power supply
saw a decrease of 3% between March 1 and March 24. During the lockdown
between March 24 and April 19, the total power supply saw a decrease of about
25%.
 If we look at the consumption pattern by consumer category, in 2018-19, 41% of
total electricity consumption was for industrial purposes, followed by 25% for
domestic and 18% for agricultural purposes. As the lockdown has severely reduced
the industrial and commercial activities in the country, these segments would
have seen a considerable decline in demand for electricity. However, note that
the domestic demand may have seen an uptick as people are staying indoors.
A nominal increase in energy and peak
deficit levels
 As power sector related operations have been classified as essential services,
the plant operations and availability of fuel (primarily coal) have not been
significantly constrained. This can be observed with the energy deficit and
peak deficit levels during the lockdown period which have remained at a
nominal level. Energy deficit indicates the shortfall in energy supply against
the demand during the day. The average energy deficit between March 25
and April 19 has been 0.42% while the corresponding figure was 0.33%
between March 1 and March 24. Similarly, the average peak deficit between
March 25 and April 19 has been 0.56% as compared to 0.41% between March 1
and March 24. Peak deficit indicates the shortfall in supply against demand
during highest consumption period in a day.
Coal stock with power plants increases
 Coal is the primary source of power generation in the country (~71% in March
2020). During the lockdown period, the coal stock with coal power plants has
seen an increase. As of April 19, total coal-stock with the power plants in the
country (in days) has risen to 29 days as compared to 24 days on March 24.
This indicates that the supply of coal has not been constrained during the
lockdown, at least to the extent of meeting the requirements of power
plants.
Energy mix changes during the lockdown,
power generation from coal impacted
 During the lockdown, power generation has been adjusted to compensate for reduced
consumption, Most of this reduction in consumption has been adjusted by reduced coal
power generation. Coal power generation reduced from an average of 2,511 MU between
March 1 and March 24 to 1,873 MU between March 25 and April 19 (about 25%). As a
result, the contribution of coal in total power generation reduced from an average of
72.5% to 65.6% between these two periods.
 This shift may be happening due to various reasons including: (i) renewable energy sources
(solar, wind, and small hydro) have “MUST RUN” status i.e., the power generated by them
has to be given the highest priority by distribution companies, and (ii) running cost of
renewable power plants is lower as compared to thermal power plants.
 This suggests that if growth in electricity demand were to remain weak, the adverse
impact on the coal power plants could be more as compared to other power generation
sources. This will also translate into weak demand for coal in the country as almost 87%
of the domestic coal production is used by power sector.
Finances of the power sector to be
severely impacted
 Power distribution companies (discoms) buy power from generation companies and supply it to
consumers. In India, most of the discoms are state-owned utilities. One of the key concerns in the
Indian power sector has been the poor financial health of its discoms. The discoms have had high
levels of debt and have been running losses. The debt problem was partly addressed under the
UDAY(Ujjwal DISCOM Assurance Yojana) scheme as state governments took over 75% of the debt of
state-run discoms (around 2.1 lakh crore in two years 2015-16 and 2016-17). However, discoms
have continued to register losses owing to underpricing of electricity tariff for some consumer
segments, and other forms of technical and commercial losses. Outstanding dues of discoms
towards power generation companies have also been increasing, indicating financial stress in some
discoms. At the end of February 2020, the total outstanding dues of discoms to generation
companies stood at Rs 92,602 crore.
 Due to the lockdown and its further impact in the near term, the financial situation of discoms is
likely to be aggravated. This will also impact other entities in the value chain including generation
companies and their fuel suppliers. This may lead to reduced availability of working capital for
these entities and an increase in the risk of NPAs in the sector. Note that, as of February 2020, the
power sector has the largest share in the deployment of domestic bank credit among industries (Rs
5.4 lakh crore, 19.3% of total).
Long-term Impacts
 Due to the Covid19 pandemic it is likely that there will be a long-lasting economic impact, instigated by the
coronavirus, which may result in a recession. In the case of an economic recession, demand for key fuels will
remain lower than they would have been otherwise, as economic activity is limited. In relation to an
economic recession, we may also see negative effects on the availability of finance to supply capital-
intensive energy projects. Renewables, for example, rely on significant levels of capital, paying back over a
number of years. If the government is to meet its ambitious target of 450 GW of renewables, then measures
may have to be taken to provide sufficient capital.
 An impact that we are already seeing as a result of the restrictions between countries, is the limits placed
on the trade of certain goods. Up to 3 GW of solar projects have been delayed as a result of trade
restrictions on goods coming out of China. With international travel currently limited and potential slowing
of economies, there may be negative impacts on supply chains that are important for the energy industry,
again impacting the rate at which clean energy projects can be deployed. Nonetheless, some of the changes
we see today could result in positive impacts for the energy system and a transition to a greener way of
living. Companies and their employees are familiarizing themselves with remote working arrangements,
which if retained to some extent, would reduce the amount of travel and the energy used in commercial
buildings. Moreover, metro areas are witnessing the benefits of reduced fossil fuel combustion on the local
air quality, which have provided communities with a glimpse of the future, if they are to pursue cleaner
forms of transport.

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IMPACT OF COVID-19 ON ENERGY

 1. How has the Covid-19 pandemic affected various energy sectors?

 The central government has enforced a nation-wide lockdown between March

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