How Coronavirus is impacting Power Sector in India?

By Rajiv Goyal

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Outbreak of Corona Covid-19 virus across globe has panicked most of the developed countries and now it has entered into India. Every country reacted lightly when it was killing people in some other country. Donald Trump tried to downplay it by comparing deaths due to Corona and other flu. Nobody was sure that it is actually a threat bigger than we saw during other epidemic. How India could remain an isolated nation in today’s globalised market. Even if we had possibilities to go on isolation, our lethargic & corrupt system played a villain role. Situation became so serious after the funny marches & celebrations on completion of 14 hrs of Junta Curfew that Prime Minister forced to declare lock down of entire nation for 21 days, worse than emergency under Article 356, as no one is supposed to come out of home. Given the alarming situations, it is pretty sure that it will not finish on 14th April 2020 & expected to extended till vaccine is discovered or no new case of Covid-19 corona virus is detected in any part of world, whichever is earlier. Government of India has declared it epidemic, a natural calamity.

Naturally, lock down means closure of flights, trains, public & private transport, factories, malls, restaurants, schools & colleges, offices etc. People are supposed to be at home and work from home. How this has changed the lives & workings, the impact can be assessed only after once situations becomes normal. This has decreased the power demand across all states and suddenly each asset of power sector in generation, transmission & distribution including its employees have become either partially loaded or redundant. Power demand has dropped by almost 20 -22 GW in peak hours and it would impact the entire value chain from coal mining, rail & truck transport, generation, ash handling, transmission & distribution.

Power Discoms have long term PPAs with generators wherein they can invoke Force Majeure clause of natural calamity towards plants generation of which is not to be scheduled due to subdued power demand for the period lock down remains prevalent in the state. While they will be able to save few hundred crores in the fixed charge payments to the generators, they will be able to avoid scheduling of costly power. However, it would not solve the bigger problem on account of drop in power consumption by consumer category like industry & commercials which is cross-subsidising to domestic & agricultural consumers. The consumption of subsidised category of consumers, specially the rural consumers, is going to increase and so the default in payments too. We must know that large volume of migrant labourers are back to their villages and there will be lead time from the normalisation of situation to return of these labourers to cities.

Generation Sector is expected to take equally a bigger hit, especially if they are having power tie-up in Section 63. Solar & wind powers are increasing in power basket of discoms due to its lower prices. Solar is hugely adding up in Industry & commercial consumer category despite of barrier on net-metering by various states. Now, the solar power with part battery back up which can be utilised in peak hours, these consumers are able to save approx. Rs. 3/- per unit. Companies are developing financial models in Captive Generation mode using Section 9 of Electricity Act-2003 eying such cross-subsidising consumers. Roof-top solar powers from 5kW & above are also available now a days at Rs. 4.75 –Rs. 5.00 per unit to high end domestic consumers. The Thermal Plant’s PLF is expected to go down further if demand is not revived by Q4Fy21.

Transmission sector is largely built on basis of long term contracts of 25 years and will not be affected even if demand remains 50%. It’s the users for whom cost of transmission per unit of availed electricity will actually increase.

At one side, generators are facing bankruptcy, discoms are surviving on funds pumped in by State & Central government and consumers are under huge tariff burdens. All enabling provisions of Electricity Act -2003 for Open Access and Competition in power distribution have actually not yielded any positive result for reducing power cost to industry & commercials due to cross subsidy (CSS), additional surcharges (ASC) & complicated approvals.

Covid-19 is going to change world economics, its need for efficiency & productivity. Work from Home will be proven HR practice reducing need of transportation but increasing demand of online contents in education, healthcare, corporate meeting, court hearings, consulting & financial markets. Automation & robotics would be new reality to decrease dependence upon people’s physical requirements.  With this, the reverse migration to villages / small towns will be a reality too. Quality food & water with adequate electricity availability will be political compulsions to provide at village levels.

China, Europe & US will pump in billions of dollars in new technology including for Solar panels and Battery storage to revive their own economies. Cheap finances by banks supported by pension funds would strengthen presence of many start-ups in India. It is expected that for an industry client, power availability through roof-top may be around Rs 5.00 per unit (Rs. 3.00 for solar generation, Rs. 2.00 for Battery Storage). Problems will to bigger industries & commercial establishment who cannot be dependent upon roof-top completely & Open Access is non-lucrative due to CSS / ASC. It’s vicious cycle and Government need to intervene to balance the interest of industry too along with Discoms.

Electricity Act-2003 need immediate amendments to include:

1.   To fix cross subsidy at 10% of Average Power Purchase Cost

2.   To promote 20% of power purchase linked to power exchanges.

3.   Solar RPO should be done away

4.   New PPA for thermal power by state discoms to be limited for maximum one year. Or they should commit not to levy ASC in new PPA duration.

5.   Open Access for consumer above 100 kW should be made mandatory

6.   Option with the Discom and Consumer above 100 MW to choose connectivity between CTU and STU to reduce cost.

7.   Power Traders be allowed to operate Intra-State Power exchanges where power can be transacted as low as 10 kW.

8.   Norms for Grant of more than one distribution license in an area to be relaxed to include industrial townships / Aero-cities/ RWAs having more than 10 townships or 15000 residents.

9.     SERC’s under Section 62 should fix only norms for APPC, Capex & Opex Per MW, AT&C losses, Depreciation & ROE in State Regulations. Discoms should be able to fix tariff as per norms & audited accounts from 1st April each year. In case SERC find any mal-practice by discom, they can levy penalty on discom & re-fix tariff from retrospective dates.

10.  Section 126 & 135 of Electricity Act is highly exploited for vested interests by discom employees. Simplification of tariff by SERC by creating single tariff category for industry/ commercial/ institute/ Street light/ Water works; defining financial gains can provide huge respite to consumers and to discoms.

Government of India promoted 25 years of PPA by Discoms which was to invite investment & protect interest of generators, however, it has given only NPAs and losses to banks & its customers, high power cost to discoms & consumers (some of them lost in MF market due to NPA of generators), in-efficient Make-in-India due to high power cost. In some states, people in the process got enriched due to gold plating by generators too.

Solar RPO are now not relevant for discoms as they fall in merit order due to lower cost. Why should discom & large consumer pay additionally 50 Paisa / unit for tying inter-state power on STU if CTU can provide direct connectivity. Competitive new discoms and Liberal Open Access can reduce cost of electricity to Rs. 5-5.50 per unit to make market productivity more efficient. Discoms have to reduce man-power cost, bring in more consultants & private contracts to run operations. NLDC should be single point online registry for all OA grants as each SLDCs / State Discoms / State Transco has made own procedures just to complicate approval processes.

Rural areas the loss making areas of discoms need to be handed over to panchayats to be billed at single point at fixed tariff which is also intent of Electricity Act-2003. The difference between fixed tariff to Panchayat / Nagar Palika and consumer tariff to be paid by State Government as subsidy, to be reduced by 10% per annum. All rural consumers upto 10 Kw must be with pre-paid meters only.

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