Power Outlook 2021

Leading power experts collaboratively share their diverse views regarding their expectations towards the power sector. The power sector’s outlook seems to be more promising despite the COVID-19 impacts.

Early this January, India has breached the record of 1,85,820 MW by touching a new high of 1,87,300 MW power demand. Announcing the same, Power Minister R K Singh expressed pleasure towards the achievement. Moreover, with the Government of India’s thrust towards renewable energy and their efforts to recover the coal stand the year 2021-2022 is poised to improve India’s power sector.

The Coal India Limited and the state-owned power companies will further diverse into clean energy and non-coal operations. According to Moody’s investor service, outlook for the global coal industry seems stable, as the demand for fuels in the key fuel consuming Asian nations including China and India, will further lead towards recovery. Here, on this note, Latish Babu, Director, Power & Grid Segment, Schneider Electric India, says “Demand for distributed generation in India will reflect that of power demand. But given the short- and long-term impact of COVID-19, the overall demand will continue to be lower than what it could have been had the pandemic not struck.” According to Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings, ICRA, “The all India electricity demand is expected to witness a growth of 6–7 percent in FY 2022 against an estimated decline of 2–2.5 percent in FY 2021, driven by a favourable base effect and likely recovery in demand from the commercial and industrial (C&I) segments. As a result, the all-India thermal PLF is likely to improve to 57- 58 percent in FY 2022 from the estimated level of 53- 54 percent in FY  2021, although it still remains subdued.”

Impacts of electricity rights for consumer rule 2020 on DISCOMs and GENCOs

DISCOMs have already been under considerable strain for years. The rules are commendable as these are meant to benefit consumers via 24×7 electricity supply, including the creation of a centralised toll-free 24-hour call centre; one must consider the ground reality and the severe stress of the DISCOMs.

They have even laid stringent guidelines for providing new electricity connections within seven to 15 days maximum in urban areas and 30 days in rural regions. In the power sector, distribution continues being the weakest link across the entire value chain. These are critical reforms and will ensure quality power is made available to consumers in a stipulated period. These norms will also enhance service standards. “At the same time, the government should look to improve the financial condition of DISCOMs, which have been reeling under substantial losses and provide crucial last mile connectivity on power distribution. A healthy DISCOM can implement these regulations in a far more effective manner. At the same time there must be seamless technology interventions like smart grid to manage every growing and complex DISCOMs”, adds Babu.

Raj Singh Niranjan, Managing Partner, Trans India Law Associates, highlights 3 major challenges of the worlds towards the power sector. Around 1.2 billion people do not have access to electricity. 3.2 billion people do not have access to clean fuel to cook food. According to a World Bank in 2017, around 5 million people every year die because of this problem. In India or between Tropic of Cancer and Tropic of Capricorn, the per capita power consumption is 500 units to 1500 units per annum and in North America and the Europe, the per capita power consumption is 15,000 to 30,000 per person per annum up gap the cubicle 500 to 15 115,000 to 30,000 per person.

I want you to see the gap between the numbers; this gap is addressed as ‘energy poverty’.  These facts change the entire outlook towards power sector. We started “right to energy” campaign to let people realise that even energy should be one of the very basic necessity. It should also be declared as a basic human right, and we are progressively working towards it. According to Indian Constitution, electricity is a concurrent subject effectively, which basically means it is a joint responsibility of both central and the state government.

Financial benefits of smart meters / pre-paid meters for DISCOMs

Digitalisation can help reduce AT&C losses by helping DISCOMs access and manage their load better while curbing losses and theft during metering and billing. Smart meters can also facilitate distributed rooftop solar power, storage, outage detection etc. It further allows the consumer to plan their consumption accordingly.

“It should be borne in mind that prepaid smart meters cannot act as a panacea for resolving the longstanding losses of DISCOMs, especially since State Government departments are behind a bulk of the non-payment”, feels Babu.

Accordingly, smart meters can be an adjunct in ameliorating the financial stress of DISCOMs in future. But the Centre must simultaneously implement other rigorous measures, including reforms, in addressing theft, cross subsidy’s and institutional non-payment.

Industrial Outlook for 2021

A report by TERI (The Energy Resource Institute) notes that the country’s electricity demand is slated to be around 7 to 17 percent lower by 2025 because of a downward revision in the GDP growth due to COVID-19’s economic shock. To offset this, it’s necessary to retire inefficient and end-of-life coal plants in reducing carbon emissions and simultaneously increasing the PLF (plant load factor) of efficient ones.

“Going by the better-than-expected bounce back in the economy, one remains optimistic that the situation will improve in the coming quarters. In its recent ‘State of the Economy’ report, the RBI asserts that, despite headwinds, India is recovering much faster than expected from the economic slowdown, even as its corona-virus situation is improving”, feels Babu.

Therefore, the centre must initiate major reforms so power companies, including state-owned distribution players, can turn the tide. Steps should also be taken to boost the implementation of projects for transmission network infrastructure at the intra-state as well as inter-state levels. Fast-tracking of such projects backed by higher budgetary outlays are the need of the hour.

Commenting on the same, Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings, ICRA, said “Given the subdued thermal PLF, lack of visibility in signing of new power purchase agreements (PPAs) for thermal IPPs and modest tariffs in the short-term power market, the credit outlook on the thermal power segment continues to remain negative. As a result, the resolution of the stressed thermal assets in the private segment remains slow, with over 80 percent of the 40 GW stressed coal-based projects unresolved. On the other hand, the credit profile of the Central power generation utilities is supported by the presence of long-term PPAs under the cost-plus tariff structure, and strengths arising out of sovereign parentage.”

According to Girish Kumar Kadam, Sector Head & Vice President, ICRA Ratings, “The renewable segment would remain the main driver of capacity addition in the power sector, with a share of 65- 70 percent over the next five-year period. While the sector is facing execution headwinds for under-construction projects, regulatory challenges, mainly in Andhra Pradesh related to tariff renegotiation and risk of grid curtailments, the credit profile of majority of the ICRA-rated wind and solar power IPPs has remained stable, supported by the presence of long-term PPAs, implementation of must-run status across majority of the states, satisfactory operating performance, adequate liquidity buffer and a strong sponsor profile. Further, the realisation of payments from discoms under the liquidity scheme has also improved the liquidity profile of some of the wind and solar IPPs.”

Dr. Ashvini Kumar, Senior Director, Renewable Energy Technologies, TERI think “2021 will have more emphasis on completing the procurement process wherever it was started. Also, I think this is the time to build indigenous capacities, capabilities and start acting upon them so as to provide quality deliverables; and to remove the apprehensions of the procurers like distribution companies. This is primarily because they are worried about their lines, and what will happen if solar energy and wind energy are integrated with the grid systems. I think we need to work on that, and definitely the procurement processes already taking care of that to some extent.”

Moreover, consistent policy guidelines must be adopted and efforts for the same must be administered thoroughly. I would like to say maybe at the level in the form of regulators or bringing all the regulators together. Right now we are progressively working towards solar power which is largely dominated by solar PV. And, as I mentioned earlier, we will soon have grid issues too. So maybe there could be some scope even for CSP or thermal is to these kinds of applications that also we should not lose sight off.

Niranjan, on this note wishes to explain three important developments are going to take place globally in 2021. First has already taken place through ‘International solar alliance’ as the alliance states 1 trillion US dollars to be spent between Tropic of Cancer and Tropic of Capricorn for applications in solar sector.

We must look at the amount of investments expected by 2030. We must also create a world solar bank which is likely to disperse USD 50 Bn over the first 10 years.  Third and most important development is, we have started working on international solar power grid.

Final Note

Government of India in May 2020 announced the liquidity support scheme of `1200 billion, in the form of loans from Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) to clear the dues to power generating companies from DISCOMs amid the adverse impact of Covid-19. However, this scheme is the fourth such bailout being provided to the DISCOMs over the past 15 years, without adequate improvement in DISCOMs’ operating efficiencies. While the Ministry of Power, Government of India has also proposed significant reforms in the sector, including privatisation of discoms to bring about a sustainable improvement in DISCOM finances, the pace of implementation of such reforms by state governments and proactive focus by the utilities to ensure the operational improvements (w.r.t. tariff, cost and efficiency levels) remain critical areas.

On the other hand, the credit outlook for the renewable energy is stable because of factors such as continued policy support from the Government of India, the presence of creditworthy central nodal agencies as intermediary procurer sin addition to the improving tariff competitiveness, as reflected from the recent new low of `2.0 per unit in the solar power segment. These factors are likely to result in continued strong investment prospects. Thus, ICRA estimates an improvement in capacity addition to 11-12 GW in FY 2022 from the estimated level of 7.5 GW in FY-2021, backed by a healthy project pipeline of about 50 GW and easing of the supply chain challenges. Moreover, the investment prospects for the sector remain strong.

 

Government should look to improve the financial condition of DISCOMs and provide crucial last mile connectivity on power distribution.

Latish Babu, Director, Power & Grid Segment, Schneider Electric India

Electricity is a concurrent subject effectively, which basically means it is a joint responsibility of central and the state government.

Raj Singh Niranjan, Managing Partner, Trans India Law Associates

Given the subdued thermal PLF, lack of visibility in signing of new power purchase agreements (PPAs) for thermal IPPs the credit outlook on the thermal power segment continues to remain negative

Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings, ICRA

I think this is the time to build indigenous capacities, capabilities and start acting upon them so as to provide quality deliverables.

Dr. Ashvini Kumar, Senior Director, Renewable Energy Technologies, TERI

Realisation of payments from DISCOMs under the liquidity scheme has also improved the liquidity profile of some of the wind and solar IPPs.”

Girish Kumar Kadam, Sector Head & Vice President, ICRA Ratings