Comprehensive COVID-19 Impact on Indian Clean Energy Sector

The COVID-19 crisis has upended the whole world with no one having a playbook or precedence to decide or act upon. The complete lockdown of a country has never been witnessed before for such a prolonged period and no one is being able to reasonably predict or forecast what will happen apart from making some very high level guesses. Though guessing is difficult, we can already see some actions being taken by the power and clean energy sectors in India’s power ecosystem which is already having some impact on the clean energy system. Here are some of them listed below:

a) Distribution Utilities stopped paying money to Power Generators

With both the demand for power as well as money collection dropping drastically after the start of the lockdown, the distribution utilities have declared a force majeure and have started to stop/delay payments to power producers. Some utilities in Uttar Pradesh etc. also stopped paying money to renewable energy generators causing a lot of stress. This led to the renewable energy ministry saying that renewable energy generators continue to have a “Must Run” status despite allowing the force majeure conditions for the power sector as per the Power Ministry. Note that solar and wind power generators do not have any variable components like the fossil fuel generators which have a fuel component that can be stopped.

b) Generators (thermal ones) stopped taking deliveries of coal and making payments

With many thermal power generators seeing a drastic decline in demand and shutting their power plants, they have stopped taking coal from the Coal India and also are not making payments as they are not getting cash flows from the distribution utilities.

c) Demand for power takes a Big Hit

Power demand is going down sharply in the country as lockdown means the demand for power has reduced sharply from the industrial and commercial sectors, though the residential sector demand remains robust. In Gujarat, among the more industrialized states, demand in the past 28 days has fallen by 44%. In Maharashtra, the demand fall was 30% during the period. Low commercial demand translates to less revenue for state power utilities. With the high-paying commercial consumers shut for another 21 days, states are avoiding power purchase. Some states are shutting down their costlier units and shifting to cheaper sources.

 d) Spot Power prices fall to new lows

The price of power in India’s energy exchange has fallen to a low of just 0.8 cents or 60 paise per unit which is a new low for power prices in the exchange. There is a massive supply of power from merchant power producers while there is hardly any demand from the distribution utilities leading to a huge fall in prices which is much below the cost of generating power by power producers. The peak power demand has come down by around 20 GW to 157.5 GW till March 23 this month, from 168.7 GW in March last year. Most of the demand is coming from discoms which are shutting their expensive power sources and buying at very cheap prices from the exchange.

e) Reforms get pushed out

With the whole power sector reeling from the unexpected shutdown, the reforms that were being planned from April have been pushed out. The Real-Time Markets (RTM) which was supposed to start in the Indian energy exchange from April 1 has been pushed out by a couple of months. This Real-Time Market was supposed to allow power producers and buyers to trade power on a real-time for the first time in India. India currently has only a Day-Ahead Market (DAM) and a term ahead market.

 The COVID-19 crisis is going to see the economy and the power sector post many firsts and it will be interesting to watch how it pans out.