Covid lockdown to impact electricity demand, cash flows for discoms: ICRA

New Delhi: The lockdown announced by the government to control the Covid-19 pandemic willl adversely impact electricity demand, cash flows for discoms and lead to payment delays for power generation and transmission companies, ICRA said on Monday.

The lockdown has resulted in a shutdown of the industrial and commercial establishments and stoppage of passenger railway services. This has adversely impacted the all India electricity demand, given that these segments constitute about 40% of the all India electricity demand, a statement issued by the ratings firm said.

Further, these segments account for an even greater percentage of the discoms sales revenues given that they are the subsidising segments. This apart, with the focus of state governments being on healthcare and relief measures, likelihood of subsidy support to the discoms getting deferred cannot be ruled out, it added.

ICRA Ratings Group Head and Senior Vice President – Corporate ratings Sabyasachi Majumdar said, “The lockdown imposed by the government is likely to adversely impact the all India electricity demand, with demand expected to decline by about 20-25% on a year-on-year basis during the period of lockdown. This would in turn adversely impact the revenues and cash collections for distribution utilities in the near term, especially given the consumption decline from the high tariff paying industrial and commercial consumers and likely delays in cash collections from other consumer segments. The revenue deficit for the discoms is estimated to be about Rs. 130 billion per month, on all India basis. This would in turn adversely impact the liquidity profile of the discoms, increase their subsidy requirement and lead to delays in payments to the power generation and transmission companies.”

The power minisutry on Friday issued directors to the Central Electricity Regulatory Commission to provide a moratorium of three months to discoms on payments to power generation and transmission companies and requested state governments to issue similar directions to state electricity regulators.

The power generation companies are already suffering delays in payments by discoms across majority of states, with payment due of more than Rs 85000 crore as of November 2019 at all India level as per the data on PRAAPTI portal.

With COVID-19 lockdown accentuating the delays in payments, the availability of adequate liquidity buffer in the form of debt service reserve and undrawn working capital limits, remains important from a credit perspective.

However, it said that relief measures such as moratorium on debt servicing over a 3-month period as notified by Reserve Bank of India and expected moderation in the interest rate cycle would be a source of comfort in the near term. The timely approval of the moratorium by the boards of the banks and financial institutions remains crucial.

The revenues for power generation companies having long-term power purchase agreements (PPAs) with the state distribution utilities (discoms) will be protected by the provision for capacity charges linked to plant availability in case of thermal and large hydro power projects and “must run” status in case of nuclear and renewable power projects.

Average monthly thermal PLF would further dip to 50-52% against 63% in the corresponding period of previous year, due to a considerable drop in demand and consequently, power generation companies especially those without any long-term PPAs would be adversely impacted given the weakening of the power tariffs in the short-term / power exchange market, said ICRA Ratings Sector Head & Vice President Girishkumar Kadam.

The under-construction renewable power projects as well as EPC and manufacturing companies in solar segment are likely to face execution delays because of disruption in supply chain in India and labour availability, following the lockdown. Given the import dependency on China for sourcing of PV modules, the execution timelines for the ongoing solar projects is likely to be affected with delays in the delivery of PV modules following the outbreak of COVID 19 in China.

This delay in turn would increase the pre-operative expenses and the overall project cost, which in turn would have impact on the expected returns.

In this context, the MNRE has notified that time extension can be provided for all renewable energy projects, which are impacted by the supply chain disruption due to COVID outbreak, under the force majeure clause.

“Given the execution headwinds amid COVID 19 affecting Q1 of FY2020-21 and assuming the normalcy thereafter, the capacity addition in the wind and solar segments together is likely to degrow by about 25%, thus estimated at about 8 GW against earlier estimates of 11 GW in FY2020-21.” said Kadam.

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