Covid-19 impact: Power demand to decline 8% in FY21; discoms’ revenue to fall
Discoms’ financial stress has been aggravated in this period due to the fall in power demand from the commercial and industrial segments and waiver of fixed charges by many discoms to the industrial segment.
Parul July 24, 2020
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Power demand is expected to decline by around 8 per cent in current fiscal due to the steep fall in demand from commercial and industrial segments on the back of COVID-19 pandemic-induced nationwide lockdown, according to a report by Emkay Global Financial Services.
As per the agency, the fall in demand is likely to result in a 13.1 per cent year-on-year (YoY) decline in revenue of discoms (distribution companies) to Rs 6.8 lakh crore in FY2021. The nationwide lockdown to contain the spread of the deadly coronavirus during the first three months of the fiscal has significantly impacted economic activity, leading to 17 per cent fall in Q1FY21 power demand, it said.
“Our analysis reveals that power demand will decline 8 per cent year on year in FY21 on a steep fall in commerical and industrial (C&I) demand,” the agency said. Further, the gap between average cost of supply and average revenue realised in FY21 is expected to increase to Rs 0.95 per unit from Rs 0.50 per unit in FY2020, translating to an under-recovery of Rs 1.12 lakh crore. According to Emkay, discoms’ overdue has reached Rs 1.17 lakh crore, which is close to the peak level witnessed pre UDAY.
“Discoms’ financial stress has been aggravated in this period due to the fall in power demand from the commercial and industrial segments and waiver of fixed charges by many discoms to the industrial segment. The overdue level is likely to remain high in FY21 due to the expected rise in under-recovery and slow progress in the Aatmanirbhar scheme toward loan disbursement,” it said.
The government has announced a Rs 90,000 crore credit line for discoms to clear outstanding dues to generation and transmission companies. Discoms’ outstanding dues increased to Rs 1.26 lakh crore as of May 2020 as against Rs 95,000 crore in March 2020. “We expect demand from C&I to decline 26.9 per cent in FY2021, leading to a cross-subsidy charge loss of Rs 32,200 crore to the discoms,” it said. Emkay further noted that power capacity addition will witness postponement in FY2021.
“We expect net capacity addition of 61 GW in FY20-FY24E. Key reforms such as ADITYA (Atal Distribution System Improvement Yojana) and Amended Electricity Act should improve discoms’ operational and financial efficiencies, if executed well,” it said. However, it expects power demand to revive in FY2022, with improvement in economic activity.
“In addition, the power ministry is working on a series of measures and reforms such as the Aatmanirbhar scheme, ADITYA, Electricity Amendment Act 2003 and the National Tariff Policy, which if implemented successfully, will improve discoms’ operational and financial efficiency,” it added.