Sustaining India’s Power and Renewable Energy Sector in the Wake of COVID-19

23 Jun 2020

The nation-wide lockdown, necessitated by the Coronavirus outbreak, has had repercussions on the already-slowing Indian economy, including the power and renewable energy (RE) sector, which has witnessed a sharp drop in demand due to the lockdown.

According to a CII White Paper on Sustaining India’s Power and Renewable Energy Sector in the Wake of COVID-19, ever since the lockdown commenced, India’s daily power demand has declined by 25-28 percent. This is largely due to the closure of factories and offices in the Commercial & Industrial (C&I) sectors. C&I demand, which accounts for over 52 percent of the total demand, is estimated to reduce by 50-55 percent.

As per data from the Power System Operation Corporation (POSOCO), the total power demand averaged around 18 billion units per week between 23rd March and 12th April, compared to 23-24 billion units during weeks before the start of the lockdown.

The reduction in power demand and delays in payment collections would cause further liquidity compression for the DISCOMs. The extended lockdown until May 3, 2020, implies a net revenue loss of Rs. 25,000 to 30,000 crore at the DISCOM level, further increasing the liquidity crunch to Rs. 45,000 to 50,000 crore.

Expected revenue and cashflow loss for DISCOMs due to lockdown (Mar’20)

The liquidity gap will have further consequences on the other players in the value chain like conventional and renewable generators, transmission licensees, and vendors in the sector.

Losses, debt, and dues pending by DISCOMs across the value chain

The Central and State Governments announced a slew of relief measures to support the sector in these turbulent times. These measures include:

Relief measures suggested by CII

The short-term relief measures deal with ensuring seamless operations during the lockdown, resolving liquidity issues for RE and thermal generators, and managing project delays.

Here are some suggestions to make more liquidity available to DISCOMS and facilitate the flow of funds to generation and transmission companies:

1. Ensuring short-term liquid management for the sector 

  • Ensuring payments to generators through the creation of special funds backed by
    tripartite agreements.
  • Creation of a special line of credit through PFC/REC.
  • Issuing directives to DISCOMs to clear at least 2/3rd of receivables.
  • Minimising cash outflows.
  • CERC could also consider supporting industrial demand revival by waiving off
    cross-subsidy surcharge.

2. Mitigating impact of delays in on-going RE projects

Renewable Energy projects will be hit by stressed financial systems, logistical challenges posed by the lockdown, and disrupted supply chains. Here are some of the immediate measures to mitigate the impact:

  • Blanket extension of the moratorium for six months corresponding to debt, CAPEX
  • LTA as well as connectivity extensions from PGCIL (Power Grid Corporation of India Limited).
  • Extension in the implementation of Basic Customs Duty, which is set to replace
    Safeguard Duty on import of solar panels beyond 29th July, and more.

3. Power Transmission Sector

Here are some of the measures addressing projects that are under construction or in different stages of execution:

  • Moratorium (~6 months) for debt repayment.
  • Exemption of LD/penalty for project affected.
  • Provide liquidity window through special Line of Credit via PFC and/or REC to states/DISCOMs.
  • Reduce interest rates or even keep rating exercise in abeyance (~6 months), and more.

Medium-term solutions centre around addressing structural issues and a transition finance package to ensure liquidity in the sector.

CII has submitted a note to the Government of India with suggestions of relief measures for the power sector.

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