Post coronavirus lockdown, industrial demand for power plummets by 30%

The economic closure due to the epidemic of coronavirus (Covid-19) is expected to worsen the demand environment for the country’s electricity producers, who were already shocked by the drop in demand in March.

So far in March, electricity producers such as NTPC, Tata Power, Adani Power, NHPC and state utilities have generated an average of 3,293 million units per day.

This figure is down 3.6% year on year (GA) compared to 3,418 million units per day in March 2019, according to the daily production report of the Central Electricity Authority (CEA). (see table opposite)

The latest data from the CEA dates from March 18, 2020. Janta’s economic shutdown or curfew started on March 22. It resulted in the closure of all economic activities except essential services such as groceries, drugs and health care, among others.

According to data from India Energy Exchange (IEX), total demand for electricity fell by 4% in March this year to 157.5 gigawatts (Gw). In comparison, electricity demand was 177 Gw in February, up 9% year-over-year and 171 Gw in January, up 5%. Analysts attribute this to the ripple effect of the closure in China in the past two months, which has had an impact on global trade and manufacturing activity.

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Electricity production in March is also down on a monthly basis (MoM). Daily production for the current month is down 5.6% on average compared to February. Production averaged 3,488 million units per day in February.

The analyst expects production to continue declining in the coming weeks, with authorities expanding the closure to slow the spread of the coronavirus. Companies involved in manufacturing and services had to cut back on their operations. “Industrial and commercial needs represent a significant part of the demand for electricity. Establishments had started to slow down with working from home in many businesses even before the Janta curfew, when people started to stay at home voluntarily, “said an analyst.

Most non-essential manufacturing industries, such as automobiles, engineering and capital goods, have started to close. Authorities have since ordered tougher closings that have affected economic activity, and will likely show up in the numbers as the days go by.

“This trend will intensify,” said an analyst who tracks the electricity sector.

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According to IEX, the closure has led to a sharp drop in demand for electricity from industrial consumers and from the distribution services that distribute electricity to end users.

“In the past few days, industrial demand for electricity has fallen by around 30% on average in the main states, while demand for distribution utilities has fallen by 30 to 35%, depending on the region” , said a senior executive at IEX.

This led to a sharp drop in electricity prices on the stock exchanges, with the sales offer of the production companies exceeding the buy offers by the users by almost 2.5 times. “The average compensation price for the last four days is Rs 2.15 per unit and the price discovered on the Day Ahead market for delivery on March 25 is Rs 1.95 per unit. In comparison, the average price in February was Rs 2.91 per unit, “said an IEX spokesperson.

Experts expect electricity demand to fall further as economic closure becomes widespread and imposed across the country. This could cause problems for electricity producers, but could be a boon for distribution companies, especially state utilities, which will see their margins increase.

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