The government should rescue India’s power sector suffering from reduced demand due to Covid-19

GlobalData Energy 21 July 2020 (Last Updated July 21st, 2020 16:33)

The government should rescue India’s power sector suffering from reduced demand due to Covid-19

Amid the Covid-19-induced countrywide lockdown, electricity consumption in India plummeted considerably. The electricity consumption in April 2020 was 18.1% and 15.1% lower than what it was in February and March respectively. Although consumption picked up towards the end of May, the scenario is expected to remain the same at least for the next couple of months. As a result, the government needs to come to the rescue of the beleaguered distribution companies (DISCOMs).

During the countrywide lockdown, a shift in electricity demand was experienced from the commercial and industrial sectors towards the residential sector. This, however, failed to offset the decline in the overall electricity demand. The shutting down of the industrial and the commercial sectors has lead to a fall in the electricity demand, which may continue for some time until the pandemic ceases.

Along with providing attractive tariffs to the industrial sector, the cost of electricity has to be managed carefully. This year, coal is expected to form 65%-75% of the electricity generation, hence, reducing the coal prices will have a likely effect on the cost of electricity.

With an existing cash crunch in the economy, the residential and agricultural sectors are unable to pay for the electricity bills. Besides, the closure of the commercial and industrial sector, which accounted for 52% of the power consumption, meant that the revenues of the DISCOMs were greatly reduced as these were the segments that paid the highest tariffs. However, it is expected that a re-structuring of the tariffs might greatly support the industries and businesses and provide a stimulus to the stagnant economy.

In 2019, India saw a 5% rise in electricity consumption to 1,063TWh. However, due to the impact of the pandemic and reduced activities, this year, great uncertainty prevails over electricity consumption patterns. Against this backdrop, providing electricity to industries at the actual cost, providing incentives to the medium and small enterprises (MSMEs) that were badly impacted by the pandemic and shifting to manufacturing in India instead of procuring from or manufacturing in China might provide an immediate and appropriate boost to the economy. If implemented carefully, these measures are expected to stimulate economic activities, which in turn, will eventually step up the electricity consumption.