With a normal lifespan lost with a nationwide lockdown, the electricity sector experiences an unprecedented amount of generating capacity being shut down.
In one month, demand for electricity fell by 31%. And, there was a 68 percent increase in capacity that was reduced.
According to data from the regional load dispatch centers, out of a production capacity of 117,000 MW, 41,037 MW was closed on Friday due to “weak demand / closing of reserves”. With well-paying commercial consumers closed for 21 days, states avoid purchasing electricity. Some states close their more expensive units and opt for cheaper sources. Uttar Pradesh has already said it will not be able to pay the electric and coal companies and the railways.
“Independent power producers who have a low fixed cost component in their rate (rate) will suffer a huge blow because of this drop due to weak demand,” said Debasish Mishra, partner at consulting firm Deloitte Touche Tohmatsu. The supply rate in thermal power plants has two components: fixed cost and variable cost or fuel cost. Under a long-term power purchase agreement with generation companies, buyers are required to pay the fixed cost even if they do not purchase electricity for a period.
Mishra says that the drastic drop in consumption in the industrial and commercial categories due to the foreclosure will also have a severe impact on the finances of public utility companies and their cash flows. In Gujarat, among the most industrialized states, demand in the past 28 days has fallen by 44%. In Maharashtra, the drop in demand was 30% during the period. Weak commercial demand translates into less revenue for electric utilities.
Maharashtra discoms are now looking to buy cheaper and burn less coal. “Our current demand is from 14,500 to 15,000 MW; the peak was 21,000 MW in February. We are tracking merit orders and closing costly government-run plants to reduce production capacity.
We are supporting thermal more so as not to burn coal, ”said an official with the Maharashtra State Electricity Distribution Company. Maharashtra has also shifted its loyalty to buying electricity in the short term. The official said: “We opened our portal on Thursday to buy short term (one to three months) on the market, because it is cheaper today and our demand is lower. We also buy on the stock exchanges, as this is reasonable at the moment. “
During the current month, the price of electricity on the day-ahead market of the Indian Energy Exchange (IEX) fell to 2.4 units. The total volume released is 77 billion units in March to date, against 147 billion in February at an average of Rs 2.9 per unit.
An IEX executive says that even if prices fall, the volume of purchases does not increase. “As states cut back on purchases from multiple power plants, many sellers have become active in market sales (or the open market). However, when prices fell, many buyers came out, “he said.
Analysts do not see this short-term purchase as good news for marketable power producers. “They will be hit because it is not viable to generate and sell electricity at the existing low prices on these exchanges,” said Rupesh Sankhe, vice president of Alara Capital.
The central government has also authorized the deferral of payments by states to power plants. He also asked the public producers to maintain a continuous supply, despite a low or deferred payment.
Industry experts say this means financial problems for power producers. “A three-month moratorium on disco payments to gencos will put more financial pressure on gencos, already struggling with low capacity utilization and overdue discom payments,” said Mishra.
In January 2020, power discoms owed a cumulative crore of Rs 86,813 to producing companies. Most of it is due to gencos belonging to the central government, Rs 30,941 crore. These are the same units that should continue to supply without payment, by the recent directive.