Bumps ahead

The Covid-19 pandemic is set to shrink economic activity glo­ba­lly this year, with ripple effects across all sectors. The inherent weaknesses of India’s power sector are getting exacerbated in this scenario.

Demand shock: As commercial and industrial activity reaches a standstill across major parts of the world, power demand has plummeted. In India, demand is down by about a third, and this will lead to a disproportionate burden on the distribution companies, since higher priced commercial and industrial loads cross-subsidise residential power. In countries like Italy, where domestic power is priced higher than commercial and industrial loads, the impact on the distribution companies will be less. Renewables enjoy a “must-run” status, and wind and solar generators like Renew Power and Azure Power have confirmed that they have not seen any curtailments yet.

Tariffs: The financial strain on already struggling distribution companies wou­ld make the case for readjustment of tariff slabs even stronger, but the appetite for pushing through higher residential tariffs is likely to be limited. In an interview with BloombergNEF last month, Minister of State (IC) for Power and New and Renewable Energy, Raj Kumar Si­ngh, said that the government is “cognisant” of the problem of extreme cross-subsidisation, and wants to bring down the power tariffs for industry. That could be one way to provide a stimulus to the economy and encourage local manufacturing.

 

 

Delays, uncertainty: There will be delays to projects in the pipeline, as supply chains are hit, and labour availability becomes a challenge. Last week, Vestas, the world’s biggest wind turbine maker, suspended its guidance for 2020 performance. “Unfortunately, the pandemic continues to spread and, with no clear prognosis on when key wind markets such as the US, Brazil and India will recover, we are suspending our gui­dance due to the poor visibility for the remainder of the year,” said Henrik An­dersen, group president and CEO. Some deadlines would be pushed ahead, but some may get mired in legal kinks, the use of force majeure notwithstanding.

Testing contracts: This would be the time that the fine print of the contracts to buy and sell power would come into play. What happens when a mall which has a rooftop solar plant installed by a third party shuts down? To what extent is the electricity buyer hit? How much of the no-generation burden does the developer bear? The contract that Delhi Metro signed to buy solar power from three power companies at Rewa in Madhya Pradesh did not “visualise” a scenario of almost nil power demand, Manu Srivastava, chairperson of Rewa Ultra Mega Solar and principal secretary, new and renewable energy, Madhya Pradesh, told BNEF. The structure of the contracts has, however, ensured that the metro firm is not paying for power it is not consuming nor is there any curtailment of solar power.

Strategy reset: The post-pandemic world will likely see some fundamental changes. Work-from-home may well become much more mainstream. There might be more of a public push for quieter roads, less traffic and lower pollution. On April 8, only one city out of 102 tracked by the Central Pollution Control Board qualified as “poor” on the air quality index. Most cities were in the top three bands: Good, satisfactory or moderate. Exactly one year ago, out of the 81 cities covered, a third were on the lowest rungs of air quality. These very visible improvements could have an impact on the energy choices made by individuals and companies. The managing director and chief executive officer of Tata Power, Praveer Sinha, thinks that almost half of India’s retail consumers would be willing to shift to 100 per cent clean power, if given the choice. “There are many youngsters (millennials, Generation Z) who would believe in doing it, aspirationally,” he told BNEF.

The author is editor, Global Policy for BloombergNEF 

vgombar@bloomberg.net