The imposition on lockdown by the Government of India to control the COVID-19 outbreak has adversely impacted the electricity demand and the average thermal PLF since March 24, 2020.
As per an ICRA note, the demand slowdown amid the lockdown is likely to lead to a de-growth of 1.0 per cent in electricity demand for the full year of FY2021, considering the full lockdown till May 3, 2020, partial lifting of lockdown in the non-red zones in May and June 2020 and resumption of full operations by industrial and commercial establishments from July 2020 which is a base case scenario.
The decline in demand is expected to supress the thermal PLF on an all India level to about 54 per cent in FY2021 against ICRA’s earlier estimate of 60 per cent and from about 56 per cent in FY2020.
According to Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings, ICRA, “Any extension in the lockdown period would have further downside risk for the demand growth. The decline in demand is expected to supress the thermal PLF on an all India level to about 54 per cent in FY2021 against our earlier estimate of 60 per cent and from about 56 per cent in FY2020. This would further delay the resolution of stressed thermal assets, a majority of which are impacted by lack of long-term power purchase agreements (PPAs).”
ICRA notes that the lockdown has also adversely impacted the revenues and cash collections for the power distribution utilities (discoms), especially given the consumption decline from the high tariff paying industrial and commercial consumers and the likely delays in cash collections from other consumer segments. This is likely to increase the book loss level for the discoms at all India level by Rs. 200 billion in FY2021, with further downside risks arising from any extension in the lockdown period and any delay in issuance of tariff orders or inadequate tariffs approved by the state electricity regulatory commissions.
Adds Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings, “This would aggravate the payment delays from discoms to power generation companies, which are already reeling under large payment dues of more than Rs. 920 billion as of February 2020. In this context, the timely and adequate liquidity support from the respective state governments, including the payment of regular agriculture subsidy, remains extremely crucial.”
The impact on the lockdown is more prominent on the performance of the state distribution utilities, notes ICRA.
While the ongoing lockdown adversely impacting the finances of the discoms heightens the counter-party credit risks for ICRA-rated portfolio in the power sector, the credit profile of ICRA-rated power generation entities in the investment grade is supported by the availability of liquidity buffer in the form of debt service reserve and undrawn working capital limits. The rating agency would continue to monitor the impact of lockdown on the receivable position from counterparties for its rated portfolio. The impact on the lockdown is more prominent on the performance of the state distribution utilities, and therefore the outlook on the long-term rating for two state distribution utilities, considering the impact on liquidity profile has been revised.
This apart, the under-construction renewable power projects are likely to face delays in execution because of disruption in supply chain in India and labour availability, following the lockdown announced by the Government of India. In this context, the Ministry of New and Renewable Energy, Government of India (MNRE) has notified that a time extension of lockdown period plus 30 days can be provided for all renewable energy projects, under the force majeure clause. Given that lockdown would impact project implementation in Q1 FY2021 and assuming normalcy thereafter, the capacity addition in the wind and solar segments together is likely to lower by about 25 per cent to 8 GW against earlier estimates of 11 GW for FY2021.
