The impact of the Covid-19 outbreak on the power sector has been far-reaching. A drop in demand, loss in revenue collection by discoms and the resultant payment delays to gencos and transmission companies are some of the challenges that the industry has encountered. The liquidity infusion package announced as part of the economic stimulus package for distribution companies is, however, expected to offer some respite. Industry experts analyse the impact of the coronavirus on the sector and the outlook for the sector in the post-Covid scenario…
What has been the impact of Covid-19 on the power sector?
Manish Agarwal
For the power sector, the immediate fallout has been a reduction in the demand for power and an increase in the financial stress on discoms. The lack of adequate liquidity has hit capacity additions in the sector. One of the biggest challenges arose from migration of labour. Tenders too have been delayed. Further, there are new safety norms. There have also been delays in receivables from transcos and discoms. All these factors have led to lower revenues.
That said, we have every reason to remain optimistic about a turnaround. The country is increasingly focused on sustainable and clean energy with a renewable energy target of 450 GW by 2030. This will require the development of robust transmission systems. In this context, approximately Rs 150 billion worth of bids have been invited under green energy corridors project. There is a lot of interest around high performance conductors in these bids and the project offers great opportunity. There are also tremendous opportunities coming up around uprate/upgrade and communication tenders. The export potential is also quite high.
But this crisis has also forced us to adapt to new ways of working. For example, collaborative technologies and tools are allowing us to have meetings with many customers and partners in far-off locations, online.
A lot of cost corrections have also taken place as a result of the pandemic. The impact has taught us to be competitive and we have also learnt to do scenario planning.
With the easing of lockdown restrictions there will be a gradual return to economic activity. We are already seeing green shoots. However, the full recovery of the power sector will also depend on how soon the overall economy recovers, and this will further depend on the successful containment of this health crisis.
Ramesh Babu V.
The Covid-19 pandemic has stretched every sphere of activity and caused unprecedented disruptions in businesses the world over. There has been so much uncertainty in the past five months. There has also been a significant reduction in commercial and industrial activities due to the pandemic and ensuing lockdowns, resulting in a reduction in electricity demand. For the months of April-May 2020, all-India total generation reduced by 19.5 per cent and NTPC’s coal generation reduced by 14 per cent as compared to April-May 2019, but thereafter there has been a continuous increase. NTPC’s group generation increased by 13.1 per cent in July as compared to June 2020 with the easing of restrictions.
Power sector activities are a part of essential services and plant operations and availability of fuel have not been significantly constrained. During the first phase of the lockdown, construction activities had completely stopped due to restrictions on man and material movement and some unit overhauls had to be rescheduled, but these have restarted with all the precautions and norms being followed.
Power engineers across the sector demonstrated exemplary commitment in ensuring uninterrupted 24×7 electricity generation and supply during the difficult period. In fact, real-time market trading of unrequisitioned surplus power on the power exchanges started on June 1, 2020.
Anish De
The lockdown imposed from March 25, 2020 led to a sharp fall in the peak and energy demand. In the first week of the lockdown, demand dropped to about 30 per cent as non-essential industries and commercial establishments (responsible for a 50 per cent demand share) were shut down. The first quarter of 2020-21 has witnessed about 53 billion unit demand erosion, which translates into 4 per cent of the annual energy demand.
Coal-based thermal power plants were backed down in response to the demand reduction, since renewable energy and nuclear are must-run and hydro supports more peaking load. Interestingly, while the demand has recovered to pre-Covid levels, the share of coal-based generation has not bounced back to the same level. Owing to muted industrial as well as power sector demand, the demand for coal has correspondingly weakened.
Electricity supply, being an essential service, has remained uninterrupted. However, discoms are facing headwinds due to a steep fall in revenue and collections during the lockdown. It is estimated that the cash deficit could lead to discom debt hitting an all-time high of Rs 4,500 billion at the end of this fiscal year.
Pramod Deo
The most important consequence has been the adverse impact on the financial heath of discoms as demand for all paying consumers – industrial and commercial – went down in the initial lockdown period. Their outstanding dues of Rs 900 billion have now jumped to Rs 1,200 billion. Recent data from the Central Electricity Authority shows that the demand is picking up; however, since the lockdown has not been completely lifted, the economy is still not in full swing and so obviously the consumption of electricity by high-paying consumers is still depressed. The government had announced the Rs 900 billion package for discoms. However, states such as Tamil Nadu, Bihar and Jammu & Kashmir could not meet the minimum criterion fixed to avail of the loans under the package. To address this, the Cabinet Committee on Economic Affairs has approved a one-time relaxation in working capital limits which will enable states to borrow under the scheme.
Another impacted area has been the renewable energy segment, where capacity additions have been affected. Further, the segment saw curbs on equipment imports from China, besides a levy of import duty on solar modules and panels. The segment needs to meet its commitment of achieving the target of 100 MW of solar power by 2022. For the solar segment to catch up, the government may need to look at extending the deadline. It has already extended the period for concession for solar and wind energy projects for payment of interstate transmission system charges, which was earlier announced till 2020. There have been some issues at the consumer end since actual meter readings have not been taken. Bills were raised based on average basis, due to which there has been a jump in the billed amount, leading to disputes.
Sanjeev Seth
Covid-19 has brought unique and unprecedented challenges with it; never before have we seen such a fall in demand for electricity. Demand was down by 60-70 per cent in April and May 2020. Though it picked up June 2020 onwards, there is bound to be an overall shortfall of around 20 per cent on a year-on-year basis. Covid-19 has brought about a sea change in the way of working due to physical distancing and the precautions that are required to be taken. Demand will eventually pick up with expansion in economic activities.
Based on the issues that have been faced, what has been the industry’s response to the pandemic?
Manish Agarwal
The Ministry of Power and its counterpart ministries are working round the clock with industry and other stakeholders to ensure that the power sector remains resilient. Even though the government was working with truncated staff strength, government officials have proactively addressed the challenges posed.
At Sterlite Power, we have implemented strict standard operating procedures (SOPs) on physical distancing, sanitisation norms, etc. at project sites, plants and offices. We have the best-in-class quality, health, safety and environment management and compliance practices and adhere to national- state- and district-level guidelines. Also, all of us are adapting to the new normal. We have successfully begun remote testing and inspections for clients at our plants. International clients have been receptive to this.
Importantly, I must commend all the frontline workers at plant and project sites who have worked right through the lockdown to ensure completion of projects. At Sterlite Power, our Master System Integration (MSI) service line delivers a multifold increase in throughput, upgrades to existing infrastructure, uprate of overhead conductors, optical ground wire (OPGW) based communication system and reliable extra high voltage (EHV) underground network, in the shortest possible time, without taking up any additional space. During the lockdown, our MSI teams delivered on critical work in Bihar and Kerala to ensure that there was no disruption to power or inconvenience to the people in those areas.
Ramesh Babu V.
During the crisis period, the focus was on keeping all the assets online and providing reliable supply of electricity, and protecting the health of our employees, families and associates.
A series of proactive measures were taken at NTPC. Strict guidelines and SOPs were complied with to ensure a safe environment at our generating stations and workplaces. The transition was relatively smooth as we had already switched to paperless working last year and a large number of employees started working seamlessly from home.
All NTPC stations extended support to the nearby population and contract workers through distributing personal protective equipment, masks, gloves and food packets, and offering medical facilities. The wages of all the outsourced workers were paid on time even during their absence and Rs 2.575 billion was deposited in the PM CARES Fund by NTPC and its employees.
Anish De
The central government announced an economic stimulus providing some liquidity relief to discoms, while regulators had earlier rolled out some measures aimed at providing relief on payments. In addition, the Ministry of New and Renewable Energy (MNRE) with the must-run status for renewable power has supported the power sector in these challenging times.
Some of the measures are given below:
- The MNRE has acknowledged Covid-19 as force majeure and issued guidelines to implementing agencies for extension of project deadlines by five months.
- The central government and regulators have provided relief through measures such as six-month moratorium on debt service, rebate in late payment surcharge (LPS) and a Rs 900 billion capital debt infusion. However, the relief measures are estimated to be insufficient to provide liquidity to discoms.
- Discoms and regulators have offered relief to consumers, through deferment of due dates, curtailment of disconnections, waiver of fixed charges, rebate in LPS, and other such measures. Many states have also abstained from tariff hikes in the annual tariff setting process for 2020-21.
- The Covid-19 crisis has brought to the fore the risks associated with overdependence on international supply chains and the importance of localisation. The government has centred the existing stimulus measures around self-reliance (Atmanirbhar Bharat) and given an impetus to supporting domestic manufacturing, especially for micro, small and medium enterprises.
- The government also introduced the National Infrastructure Pipeline which envisages Rs 23.4 trillion of public-private investment across the power sector.
Pramod Deo
The power industry has risen to the occasion in this difficult time as far as the generation and transmission segments are concerned. They have maintained services, and even discoms, despite their health, have gone out of their way to provide essential services. More so, in the backdrop of the severe cyclones that have affected West Bengal, Odisha and Maharashtra and completely destroyed distribution networks in many areas.
Sanjeev Seth
Though initially caught off guard by the scale of the pandemic, the industry has shown resilience in the face of the severe crisis by adopting mitigation measures. The industry has adapted by reducing the number of working hours, adopting the work-from-home mode for staff, staggering working hours, adhering to physical distancing norms, distributing and using masks, etc.
What is the outlook for the sector based on the current situation?
Manish Agarwal
In a fast developing country like ours there is always a lot of network congestion that builds up as utilities are grappling with ageing infrastructure, which is unable to meet the rising power demand. Setting up additional greenfield infrastructure requires additional space, more time and higher capital investment. Therefore, the future is clearly in uprating/upgrading and retrofitting brownfield infrastructure to augment capacity, using the same corridor footprint, without taking up any additional space to deliver power to the last mile, in a timely and cost-effective manner.
Sterlite Power’s bespoke solutions cater to these requirements of utilities. Through our solutions on thermal uprate, voltage upgrade and other technology-enabled solutions we decongest and strengthen networks and enhance transmission capacities on existing lines. Further, we see also see opportunities in the fiberisation of power transmission networks. Fibre riding over power transmission infrastructure is globally used by government, utilities, telcos etc., for their long-haul access communication networks due to excellent uptime, reliability and availability. Additionally, power distribution segment reforms as envisaged in the draft Electricity Amendment Bill will help in creating demand for the power cables business. This demand was earlier suppressed due to the unavailability of capex in the distribution segment.
Today, uprate/upgrade constitutes just around 3 per cent of total Indian capex in transmission and sub-transmission. The government should look at increasing expenditure by three-four times at the central and state levels.
With the Self-Reliant India initiative, the industry is upbeat. We will focus on developing capabilities around high performance conductors, OPGW, EHV cables and various technologies, not only for the domestic sector but also so that we become a net exporter. This will not only benefit us in-the-form of export revenues, but will also benefit associated industries such as aluminium and steel.
Ramesh Babu V.
With the reopening of the economy, especially the manufacturing and transport sectors and the Atmanirbhar Bharat Abhiyan stimulus, electricity demand is bound to increase. This would translate into higher plant load factors (PLFs) for coal-fired stations in the short term.
Going forward, there is going to be increased focus on renewables, energy storage systems and new sources of energy. NTPC has taken a number of initiatives for setting up renewable capacity, procuring green hydrogen, promoting electric vehicles, using biomass in boilers, setting up of waste–to-energy plants, etc. NTPC is also setting up a demonstration plant at one of its coal stations for capturing carbon dioxide from flue gas and converting it into useful chemicals like methanol.
Anish De
While the country debates on a U-shaped, V-shaped or W-shaped economic recovery, the power sector is likely to follow the same trend. However, in the post-Covid era a few shifts are clearly visible, such as:
- Transition to renewable energy: Due to Covid-19, the world has witnessed that the energy system can exist without coal-based electricity. The cost of building renewable energy capacity (capital cost) has also become cheaper than building a thermal project. In the medium to long term, we expect to see a focused shift from coal-based energy towards renewable energy on account of a policy push, better economics and climate change initiatives. In the recent bids for supplying round-the-clock renewable energy, a competitive first-year tariff of Rs 2.90 per unit was discovered which will further increase pressure on thermal plants.
- Localised manufacturing and supply chain: Till now, the focus on domestic content/localisation has been largely limited to policies that penalise imports (through taxes and duties) and mandate procurement of a certain percentage of domestic content by government agencies. However, with the manufacturing push in India, the focus would be to remain free from international supply chain issues. This would require comprehensive reforms focused on reducing the hurdles for new businesses in terms of licensing, permits, financing, labour laws, taxation, land acquisition, etc. In addition to the ease of doing business, the focus should also be on skill development to prepare a workforce to meet the future needs.
- Power market reforms: The real-time market launched on June 1, 2020, will improve the balance of demand and supply of electricity flowing through the grid and help in bringing down the cost of power. The government has also introduced the long-awaited draft Electricity Amendment Bill, 2020, electricity futures, and the green term-ahead market in a short period of time.
Pramod Deo
The reforms proposed under the draft Electricity Amendment Bill will be closely watched. Some of the reforms suggested are politically sensitive such as the role of the state regulator, as state governments are not going to easily surrender their control and authority over regulatory commissions. Another reform proposed is having a separate dispute resolution authority. The idea behind this move is that regulatory commissions are overburdend with a large number of cases, and that load can be passed on to the dispute resolution authority. Also, the timing is crucial. Any government which comes to power has a three-year window for any major political reform move and beyond that there is focus on the next elections. With the fallout of Covid-19 expected to last through 2021, there is a very small window for making any major reforms and getting them accepted by the state governments.
Sanjeev Seth
The sector outlook appears to be good in the near future and will be even better in the medium term. In the near term, the expected privatisation of discoms in union territories, Uttar Pradesh and Odisha seems to be a move in the right direction. In the medium term, the amendment in the Electricity Act will usher in progress in the sector.
What will be the key priority areas in the post-Covid world?
Manish Agarwal
Digital transformation will be of utmost importance across sectors and industries in ensuring business continuity. Innovation will remain a key differentiator along with the use of advanced technologies such as aritificial intelligence (AI), robotics and drones for driving both safety and efficiency of operations. For the past year, Sterlite Power has been deploying robotics technology Skyrob for the safe installation of OPGW on high voltage power transmission lines under energised (live line) conditions. Skyrob-assisted operations for OPGW stringing will enhance safety and accelerate the speed as well as quality of projects. Aside from this, focus will be on sourcing, retaining and investing in quality talent. There will be an immense focus on exports. Making the grid resilient to any disruptions from accelerated climate change will become increasingly important and, in that context, we see environment, sustainability and governance taking front and centre in businesses.
Going forward, we will need investments in power transmission to be significantly ramped up both at the central and state levels. There has to be a clear thrust on brownfield infrastructure, like we have seen in the US, the UK, Australia, etc., which are investing heavily in transmission and sub-transmission to equip themselves to meet power demand requirements in the coming decades. There needs to be a clear focus on policy and adoption of technology to stay cost efficient.
Ramesh Babu V.
The first and foremost focus will be on health and hygiene awareness of employees and the society at large.
The second focus will be on automation and digitalisation. The disruptions caused by the pandemic induced more digital transformation in recent months than was seen in many years. Working on virtual collaboration platforms was the only option for both employees and partners and this is going to be the new normal now.
The third area of focus will be on upskilling and reskilling of employees. Before the current crisis, there were limitations on account of physical movement of employees, but now with online options there are new ways of working and skills can be upgraded. Another priority area is cybersecurity. Along with personal safety, cybersecurity has also become very important due to increased digitalisation and a substantial increase in use of online mediums on account of remote working.
Anish De
Although demand has been gradually recovering with the resumption of economic activities, there is uncertainty about the duration for full recovery and growth thereafter. Thus, stronger measures are needed to speed up recovery and improve resilience of the power sector amidst the new normal. These interventions need to focus on:
- Stronger financial stability: The central government has already rolled out a liquidity infusion package; the amount could possibly help meet the pre-Covid dues (Rs 945.99 billion, as of March 2020) but not the expected future deficits. It is necessary to infuse further liquidity in discoms, commensurate with their respective cash deficits, to ensure uninterrupted and reliable supply of electricity and safeguard the power system value chain.
- Continued green growth transition: In the post-Covid-19 scenario, power demand could return to normal but is likely to still be lower than supply. With an overcapacity scenario, the choice would be between an increase in renewable capacity additions and a reduction in coal-based power PLFs. In this scenario, investors and buyers will require a clear trajectory or roadmap for renewable capacity addition as well as risk mitigation measures to ensure progress towards creating a sustainable energy system.
- Sustained reforms: The power market reform agenda needs to continue as deep power markets can not only help in bringing greater efficiency in the power sector but can also assist in renewable energy integration, thereby accelerating the pace of energy transition in the country.
- Grid modernisation: The Covid-19 pandemic and the resulting drop in demand have shown the importance of flexible and adaptable power assets. However, these will require investments to build smarter, and more flexible and responsive grids which ensure that critical services such as electricity remain available without interruptions. We need comprehensive planning for grid modernisation that is aligned with green growth targets.
- Consumer centricity: The DeenDayalUpadhyaya Gram JyotiYojana has enabled grid connectivity and SAUBHAGYA has enabled last-mile connectivity to the poorest of households. The next phase should be to enable 24×7 and reliable power supply. Utilities must now focus on customer centricity as customers would appreciate an omnichannel interface, and easy access to customer care and personalised services.
- Building resilience: A resilient electricity grid is important as it ensures that the sector is insulated from natural disasters, technological threats and pandemics alike, thereby limiting the impact on the economy and people. Thus, it is imperative to develop and implement integrated planning approaches that hinge on the holistic view of demand-supply aspects, affordability, the environment, ease of access, resilient system infrastructure and consumer services.
Pramod Deo
The key priority has to be improving the financial health of discoms. There are a number of ways that can be done, such as options of having a franchise or a sublicensee, but this has to be acceptable to the state governments. There should be some conditionalities placed when discoms are given financial assistance and working capital loans since these are being guaranteed by the state governments. This will help bring control over state governments, but how this plays out is clearly a political matter.
Sanjeev Seth
The key priority in the post-Covid world is to ensure safety of workers. Remote metering, smart metering, remote monitoring of consumption through AI and related technologies will play a greater role as contactless operation becomes a reality. Also, to ensure revenue collection of energy sold, methods such as digital collection and third-party kiosks will need to be encouraged.