Power Demand Expected to Fall Up to 6% in FY21, Says Icra

India’s electricity demand is likely to fall by up to 6 per cent this fiscal due to re-imposition of lockdown restrictions in many parts of the country, ratings agency Icra said on Monday.

According to Icra, all-India power demand in financial year 2019-20 was 1,291 billion units.

Earlier in April, the agency had estimated the fall would be a marginal 1 per cent.

With the re-imposition of lockdown restrictions in many parts across the country, the all-India electricity demand is likely to decline by 5 per cent to 6 per cent in FY21, over FY20, against the earlier estimate of 1 per cent de-growth made in April 2020, Icra said in a report.

It said during the first quarter of FY21, all-India electricity demand declined by 16.2 per cent year-on-year because of the lockdown imposed to control the COVID-19 pandemic.

“…the revised energy demand de-growth estimate assumes demand decline of 3.5 – 4.0 per cent in Q2 (second quarter or July-September) and Q3 FY21 and a marginal recovery of about 1.0 per cent in Q4 FY2021, given the slower pace of recovery expected in industrial and commercial activity in the country, ” it said.

This, in turn, is expected to suppress the thermal PLF (plant load factor) on an all-India level, which is now expected to decline to 50-51 per cent in FY21 against 56 per cent in FY20, it said.

Icra’s Group Head and Senior Vice President – Corporate Ratings Sabyasachi Majumdar said the decline in energy demand has adversely impacted the revenues and cash collections for the power distribution utilities (discoms).

There is decline in bulk consumption of power from the high tariff paying industrial and commercial consumers, and delays in cash collections from other consumer segments, he said.

Majumdar further said “the consequent revenue gap for the discoms at all India level is estimated to increase further to about Rs 420-450 billion in FY21 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 would require a tariff hike of 2.5 – 3 per cent 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,” he added.

Looking at the adverse impact of COVID-19 on discom finances, the government announced a liquidity support of Rs 90,000 crore for the state power discoms, in the form of loans against receivables, from Power Financial Corporation (PFC) and Rural Electrification Corporation (REC) but there has been slow progress in off-taking these loans, the agency said.

Icra said timely implementation of this scheme remains important to clear the outstanding dues to power generating companies, which stand at Rs 1.17 lakh crore as of May 2020.