Electricity demand likely to contract by 5-6% in FY21

Electricity demand likely to contract by 5-6% in FY21
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Electricity demand likely to contract by 5-6% in FY21

Highlights

ICRA says recovery slower than earlier estimate of reaching pre-Covid-19 level in July

New Delhi: With the re-imposition of lockdown restrictions in many parts of the country, the pan India electricity demand is likely to decline by 5 per cent to 6 per cent in FY2021 over FY2020, rating agency ICRA said in its latest report on power sector.

ICRA in April had estimated 1 per cent de-growth in electricity demand in the current year. The revised energy demand de-growth estimate assumes demand decline of 3.5 per cent to 4 per cent in Q2 and Q3 FY2021 and a marginal recovery of about 1 per cent in Q4 FY2021, given the slower pace of recovery expected in industrial and commercial activities in the country.

This in turn is expected to suppress the thermal PLF on an all-India level to about 50 per cent to 51 per cent in FY2021 against the rating agency's earlier estimate of 54 per cent and from 56 per cent in FY2020.

The all-India electricity demand declined by 16.2 per cent in Q1 FY2021 on a year-on-year (Y-o-Y) basis because of the lockdown imposed to combat the Covid-19 pandemic. While the demand recovered from a Y-o-Y decline of 23.1 per cent in April to 10.9 per cent in June and further to 3.9 per cent in the first 15 days of July, the recovery was slower than earlier expectations of reaching pre-Covid-19 level in July.

Commenting on the energy demand trend, Sabyasachi Majumdar, Group Head and Senior Vice President, Corporate Ratings, ICRA, said: "The decline in energy demand has adversely impacted the revenues and cash collection of the power distribution utilities (discoms), especially given that the bulk of the consumption decline has come from the high tariff paying industrial and commercial consumers.

"The consequent revenue gap for the discoms at an all-India level is estimated to increase further to about Rs 42,000-45,000 crore in FY2021 against our earlier estimate of Rs 20,000 crore.

The recovery of this revenue gap, if allowed through regulatory asset (RA) by the State Electricity Regulatory Commissions (SERCs), would require a tariff hike of 2.5 per cent to 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 the discoms."

Given the adverse impact of Covid-19 on discom finances, the Government of India has announced a liquidity support of Rs 900 billion for the state power discoms in the form of loans against receivables from the Power Financial Corporation (PFC) and Rural Electrification Corporation (REC).

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