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Covid-19 effect on the power sector and why the power sector is important

Indiau2019s power sector is witnessing turbulent times on the back of payments delays, the bankruptcy of large generation capacity, and regulatory inconsistencies. Know more

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Covid-19 effect on the power sector and why the power sector is important

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  1. Covid-19 effect on the power sector and why the power sector is important? India’s power sector is witnessing turbulent times on the back of payments delays, bankruptcy of large generation capacity and regulatory inconsistencies. The challenges of COVID-19 have threatened to push the discom sector over the edge. The major lockdown that has extended up for a good 4 months with a little ease in the last two has caused a massive drop in consumption, with declining demand by both industrial and commercial consumers as well as the railways.

  2. Since these consumers cross-subsidize domestic and agricultural consumers, the loss is even greater. On recognizing these problematic circumstances the Ministry of Power has attempted to cushion the blows by waiving the late payment supercharge under power purchase agreements. Following this, MOP has also allowed a 50% relief in the letter of credit mechanism required to be maintained by most discoms when scheduling power. Conversely, the MOP has insisted that generators and transmission entities can not stop supplying power against the discoms, even against mounting bills.

  3. The MOP also clarified that Discoms will have to continue paying for power within 45 days of bill and that they cannot invoke non-payment of amounts to generators. The CERC states relief from late payment surcharge would have to be claimed in terms of force majeure provisions of relevant PPA. Furthermore, several operations have been severely hampered, with limited off-take requirements from discoms, the supply chain has also been impacted. Notwithstanding recent decisions the power sector is besieged with heavy losses, huge liquidity challenges, financial stress and operating with low plant load factors. What is most important right now is not to stamp ‘must-run’ status on electricity services while avoiding the deterioration of top power plants, services and company valuation which will eventually cause the industry to run on lack of finance or funds. The focus should rather be shifted towards benefits and concessions for generators in order to provide concentrated relief to the Discoms. Currently, there is no financial assistance nor are the generators getting wage support.

  4. Simply put, unless the Government extends some provisions or introduces steps to address the concerns and cash flow issues of the generators the crisis can spiral out of control. It’s extremely crucial that the power sector is supported to resolve the cash flow issues, so as to prevent a long-term impact on the sector. Know More – https://www.tatapower-ddl.com/contact-us/touchpoints/locate-us

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