The Covid-19 outbreak has had a far-reaching impact on the power distribution segment. Besides historical challenges such as revenue gap and high aggregate technical and commercial losses, a new set of problems that the segment faced owing to the pandemic was a drop in demand and sales from high-paying commercial and industrial (C&I) consumers due to the closure of business operations, delays in revenue collection from customers, delays in tariff hikes and severe liquidity issues. While the segment has seen some recovery in the past couple of months, it still faces enormous challenges. Experts from leading discoms shared their views on the impact of the coronavirus on distribution, its implications for the segment and the overall outlook…
What has been the impact of Covid-19 on the power sector?
Sanjeev Seth, CEO, T&D Business, India Power Corporation Limited
Covid-19 has brought unique and unprecedented challenges with it, as never before we had seen such a fall in electricity demand. The demand for electricity was down by 60-70 per cent in April and May 2020. Although it has picked up June 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 social distancing and precautions that are required to be taken. The demand will eventually pick up with the expansion of economic activities.
Ganesh Srinivasan, CEO Tata Power Delhi Distribution Limited
Covid has had a major impact on the power distribution segment. The power demand from C&I customers dropped drastically during the lockdown months of April, May and mid-June. As all of us are aware, since the C&I segment cross-subsidises the residential segment, any shortfall in revenues from this high-paying segment puts a tremendous financial burden on discoms. In addition, as a fallout of the lockdown, collections and payments from all consumer segments were hit substantially. While both demand and payment are picking up now, we have a long way to go before we achieve normalcy. The second area of concern is the health and safety of employees and customers. We have to reorganise operations so that adequate social distancing can be maintained. Besides, we need to maintain buffer teams so that we can continue to supply 24×7 power even if a few people in the team get impacted. Further, when customers visit our premises for payments, requests or other queries, we need to take proper care and precautions. These steps will remain in force as long as the coronavirus is active.
At Tata Power-DDL, in the first two months (April and May 2020), the power demand went down by close to 50 per cent; however, it has now gradually recovered. Currently, the power demand is at about 90 per cent of that in the previous year, in terms of the overall demand and peak load. However, the consumer mix, which is a crucial determinant of discom finances, is still not the same. Usually, we have 50 per cent of the power demand from the domestic and C&I segments. However, currently (as of August 2020), 65 per cent of the demand is from domestic consumers and 35 per cent the C&I consumers, which means the C&I power demand has not picked up fully yet. In terms of revenue collection, the first two months were very tough. We witnessed a 40 per cent shortfall in collection, and now it is recovering slowly. In July and August 2020, there was a shortfall of about 10 per cent in revenue collection.
This year, because of the lockdown and the weather, the peak power demand recorded in Delhi has been muted. Delhi’s peak power demand last year was 7,409 MW. This year, mainly due to the decrease in industrial and commercial activity, it has been 6,314 MW. Having said that, a comparative statement of last year and this year clearly shows that peak demand/energy requirement was higher in the months of January and February 2020 as compared to 2019. However, with the start of lockdown due to Covid-19, both started showing a decreasing trend from March 2020 onwards.
During the lockdown, the high reduction in the day power demand was on account of commercial and industrial establishments being closed. In contrast, residents were confined to their homes, using home appliances more. Hence, there was no impact on Delhi’s domestic load, which is around 75 per cent of Delhi’s total power load. In fact, there was a slight increase in this category.
At its peak, the gap in Delhi’s peak power demand was around 40 per cent. However, after the end of lockdown version 3 on May 17, and following the ease of restrictions, Delhi’s peak power started increasing and the gap has narrowed.
Since the easing of restrictions on May 18, 2020, Delhi’s peak power demand has increased by over 50 per cent. Having said that, if we compare the peak power demand with April 2020, it has increased by over 87 per cent. That’s not all. In fact, in July, August and September (as of September 21) this year, Delhi’s peak power demand surpassed last year’s peak power demand on corresponding days on 18 occasions – seven in July, six in August and five in September – by up to 19 per cent.
What has been the industry’s response to the pandemic? What is your assessment of the liquidity package extended to discoms?
The industry, though caught offguard initially by the pandemic challenge, has quickly risen to fight it with all the resources at its disposal. It was a unique and unprecedented situation when the demand fell by 60-70 per cent, with no end in sight; however, with the economy opening up slowly, the demand perked again and has now almost reached the pre-Covid levels, though the sentiment in the market is subdued and may take time to pick up.
Our industry was facing a demand-side crises prior to Covid-19 and Covid-19 has only aggravated the crisis. Demand creation and higher fiscal stimulus than already announced earlier are required for the short-term revival of the industry. Business confidence, especially for the micro, small and medium enterprises (MSME) sector, has been enhanced through a slew of measures. However, further measures may be required for MSMEs to restart businesses.
The liquidity package provided by the government was very much needed. However, private utilities should also have got a slice of it; with the conditionalities around the current disbursement, especially the state government, guarantee is not possible to procure for private discoms.
From the financial perspective, Tata Power-DDL deferred some amount of payments to generators. Earlier, we used to avail of rebates when we paid within the stipulated time of five days. Although we do not get the benefit of rebates now, we are trying to make all our payments to gencos and transcos by the due date so that we do not have to pay late payment charges. Further, we have availed of bill discounting from gencos and transcos. Bill discounting has helped us postpone payments by three to six months, varying from generator to generator. This has reduced the immediate impact on the cash outflow of the discom. We have also relooked at our capital expenditure plans. We are pursuing only what is essential and have postponed/deferred some of the capital expenditure that we had planned. We have implemented all stopgap measures, which have helped us in the short term. However, in the long term, revenue collection has to improve, on the back of increase in demand from C&I consumers. We have also applied for the PFC/REC Rs 900 billion liquidity infusion loan scheme announced by the government, though it is still in the process.
Our biggest achievement is that we have ensured uninterrupted power supply during this challenging time, even during the critical “lights off” moment in April 2020, when the load went down substantially and after 15 minutes went up again. I would like to acknowledge the contribution of various individuals and teams at Tata Power-DDL who have ensured that as an essential service, we are playing our role in fighting this pandemic by providing uninterrupted supply to hospitals, homes and other essential services. The other significant initiative has been that we have scaled up our digital offerings to customers significantly.
The liquidity package is a necessary and well-conceptualised scheme. Fortunately, we did not have any pending payments till March 2020. Our challenges started from April 2020 onwards, following the lockdown. However, many discoms were already in bad shape even to start with and this package is necessary to help generators survive and ensure that transmission companies get their payments. If generators do not get money, then coal companies’ payments will not be made and power supply will get disrupted. It is only hoped that during this time, discoms will take the necessary actions to improve their operational and commercial performance so that they can repay the loan amount and do not get back into the same situation in the future.
The power sector, including discoms, has created business continuity plans, using technology and digitisation. At BSES also, the focus has been on digitisation for becoming a digital utility and towards this the discom has been promoting digital for a while now. The push towards digitisation has come in handy for the discom during the Covid pandemic. Moreover, the digitalisation efforts have received a fillip as more and more consumers are turning to digital solutions to connect with BSES.
During these trying times, all consumers of BSES could do self meter reading, download their bills and even pay them from the comfort of their homes, using convenient digital options such as mobile apps, SMS and WhatsApp.
Moreover, connecting with consumers is a responsibility, that BSES takes very seriously. Even amidst these challenging times, the discom has been making use of different platforms to keep in touch with its consumers. In continuation of these efforts, BSES has launched “BSES Aap Ke Saath” – a novel and perhaps a first-of-its-kind initiative in the country, by a power distribution company – to organise virtual online meetings with its RWAs.
During the Covid era, our safety and that of our colleagues and family members is very important. We are living in an age of the ‘new normal’, where we have to reinvent ourselves and learn to adapt to the changed circumstances. In the era of the new normal, our role as an employer has also changed significantly. Along with employees’ safety and a safe workplace, we have to ensure business continuity. We are doing this using the latest technology, intensive sanitisation, strictly adhering to safety protocols and awareness campaigns.
During the new normal prevailing on account of the Covid-19 lockdown, BSES also introduced in-house web-based training for quality enhancement and multiskilling programmes for employees.
The liquidity package extended to discoms has been a welcome gesture by the Ministry of Power. This was the need of the hour given the extraordinary circumstances.
What is the outlook for the sector?
The sector has already reached pre-Covid levels of operations; and further growth is dependent on the growth of the economy at the macro level.
The distribution segment is the most critical component of the power sector value chain, which actually pays for generation and transmission. Therefore, the health of the distribution sector is critical for the entire power sector. We are looking forward to the implementation of the proposed amendments to the Electricity Act, including several key features pertaining to sublicensing, and the tariff policy especially related to cross-subsidy, which will help reform the sector in a big way. We are also looking forward to the privatisation of power distribution, not only in union territories but also in various states.
By looking at the power demand over the past five months, we can say that normal economic activities are picking up. This throws up an opportunity for all stakeholders in the power sector, including the government, to reduce the carbon footprint of the sector.
BSES has tied up over 1,700 MW of renewable capacity, which is being commissioned progressively. By the end of financial year 2020-21, when commissioned, this capacity is expected to contribute to about 27 per cent of BSES’s total power portfolio in terms of capacity.
BSES is also aggressively pursuing battery storage and solar rooftop opportunities, which have been appreciated by the receiving sector and various stakeholders. As of August 2020, over 85 MWp of rooftop solar capacity has been net-metered in BSES areas.
During the Covid-19 pandemic, since consumers mostly stayed home to be safe, rooftop solar has helped them to reduce their bills. During this time, Delhi also came out with a rooftop solar tender, Ministry of New and Renewable Energy’s Solar Phase II scheme, which is focused on discoms. The tender has been frozen and successfully completed. Projects have been sanctioned and have been completed. Further, during this time, the Electric Vehicle Policy was also notified for promoting green mobility. Discoms, along with other stakeholders, are working with the government for faster adoption of e-mobility in Delhi.
BSES has already rolled out public charging EV infrastructure (over 50 charging points) in their area in collaboration with Energy Efficiency Services Limited, the Municipal Corporation of Delhi and shared mobility partners such as Blu Smart mobility. BSES has also completed the study for rolling out private and home charging electric programmes under the Delhi Electric Vehicle Policy.
In view of the above, we would like to re-emphasise that economic activity is picking up, which is evident from the increasing demand. Moreover, we are committed to sustaining the massive reduction in pollution levels during the lockdown. In the future, a third option of green and clean mobility as well as a green power portfolio, including promotion of rooftop solar and energy storage, will further pick up steam.
What will be the key priority areas for distribution utilities in the post-Covid world?
The key priority is safety of employees and sustaining operations over a minimum demand. Availability of skilled workers was an issue previously, but this has got aggravated due to Covid-19 as it requires maintaining physical distancing, wearing proper masks, etc. More labour is required for jobs and additional bench strength is required for staff down with Covid-19. This may result in a shortage of manpower on regular operations and maintenance works. So, proper resource planning is a priority. Covid-19 has accelerated the pace of digitalisation and smart technology adoption. IPCL has ensured reading-based bills and online payments by our customers without any human intervention during these days due to our prior initiatives in adopting digital and smart technologies.
There are several priority areas including:
- Digitalisation of services and transformation into digital utilities.
- Reduction of the carbon footprint in an aggressive manner for all the services of discoms.
- Introducing more value-added services for customers and greater focus on customer-centric digital technologies.
- Reskilling of its workforce in the latest technologies, as well as in soft skills for working in the new normal world.
- To become more sustainable and carbon-free distribution utilities.