December 2020

2020 has been a turbulent year for the power sector. The Covid-19 pandemic exacerbated the financial stress in the sector. And the industry’s return to normalcy has been slower than expected, despite strong government measures to support the sector.

Power consumption in November 2020 has been 11 per cent lower than that in the previous month, and the lowest in six months. Capacity addition in both conventional as well as renewable power generation has also slowed down. In the first eight months of 2020-21, the total new power generation capacity addition stood at 9.2 GW, the lowest annualised addition in the past five years.

The health of the discoms has remained a key area of concern. In its recent update, Moody’s Investors Service maintained its negative outlook on India’s power sector, even as the rest of Asia Pacific continued to be stable. The chief reasons for the unfavourable forecast were uncertainty about demand revival and delayed payments by discoms.

The discoms’ overdue amount stands at a significant Rs 1.264 trillion as of October 2020, rising 36 per cent from Rs 931 billion in October 2019. Discoms in key states – Rajasthan, Tamil Nadu, Uttar Pradesh, Karnataka, Maharashtra, Jammu & Kashmir and Telangana – account for 79 per cent of the total amount due to gencos. The Rs 1.2 trillion liquidity package was one of the key announcements this year to help discoms clear their dues with gencos and transcos. Till November 2020, loans worth Rs 1,180 billion were sanctioned. However, disbursements under the scheme have been very slow due to the reluctance or delay on the part of the state governments to adhere to the stringent norms put forth by PFC and REC. Besides the package, in order to provide relief to gencos, the government had enforced a payment security mechanism from August 1, 2019.

The government’s discom privatisation plans also faced hiccups. Following the finance minister’s announcement of privatisation of UTs, the Ministry of Power issued draft standard bidding documents to select bidders for acquiring a majority stake in the distribution licensees, in September. Bids were invited to privatise the Chandigarh discom in November. However, month, the High Court of Punjab and Haryana has issued a stay order on the central government’s proposal.

As the economy normalises and the impact of the pandemic on the demand and supply chain eases, the sector can hope that 2021 is a slightly better year. Further, the sector is pinning its hopes on some key reform moves by the government, such as the reforms-linked, result-based scheme for distribution by merging ongoing schemes such as the IPDS, DDUGJY and UDAY, and the Draft Electricity Electricity (Amendment) Bill, 2020. These should help buttress the sector’s recovery and undo some of the damage caused by the pandemic.

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