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Post coronavirus lockdown, industrial demand for power plummets by 30%

(26 Mar 2020)

The economic shutdown due to the coronavirus (Covid-19) outbreak is likely to worsen the demand environment for the country's power producers which are already reeling from lower demand in March.

In March so far, power producers such as NTPC, Tata Power, Adani Power, NHPC and state government utilities generated 3,293 million units a day on average.

This is down 3.6 per cent year-on-year (YoY) from 3,418 million units per day during March 2019, according to the daily generation report by the Central Electricity Authority (CEA). (see the adjoining chart)

CEA’s latest data is for March 18, 2020. The economic shutdown or Janta curfew started on March 22. It led to the closure of all economic activities except for essential services such as groceries, medicines and health care, among others.

According to data from India Energy Exchange (IEX), total power demand is down 4 per cent in March this year so far to 157.5 gigawatts (Gw). In comparison, power demand was 177 Gw in February, up 9 per cent YoY and 171 Gw in January, up 5 per cent. Analysts attribute this to the spillover effect from the shutdown in China for the last two months that has impacted trade and manufacturing activity globally.

Power generation in March is also down on a month-on-month (MoM) basis. The daily generation in the current month is down 5.6 per cent on an average compared to February. Generation was 3,488 million units per day on an average during February.

Analyst expect generation to decline further in the forthcoming weeks as authorities widen the shutdown in a bid to slow down spread of the coronavirus. Companies involved in both manufacturing and services had to scale back operations. “Industrial and commercial needs account for a significant chunk of power demand. Establishments had started to slow down with work-from-home in numerous companies even before the Janta curfew, when people started staying home voluntarily,” said an analyst.

Most of the non-essential manufacturing industries, such as automobiles, engineering and capital goods have began to shut operations. Authorities have since ordered stricter lockdowns which have affected economic activity, and will likely show up in the numbers as days go by.

"This trend will intensify," said an analyst who tracks the power sector.

According to IEX, the shutdown has led to a sharp decline in power demand from industrial consumers and distribution utilities that distribute power to the end users.

"In the last few days, the industrial demand for power is down around 30 per cent on an average, across major states, while demand from distribution utilities is down 30-35 per cent, depending on the region," said a senior executive at IEX.

This has led to a sharp decline in power prices on the exchanges as the sell bid by generating companies exceeds buy bids by users by nearly 2.5x. “The average clearing price for the last four days is Rs 2.15 per unit and price discovered on the Day Ahead Market for delivery for March 25 is at Rs 1.95 per unit. In comparison, the average price in February was Rs 2.91 per unit,” said a spokesperson of IEX.

Experts expect a further dip in power demand as the economic shutdown becomes more widespread and entrenched across the country. This could cause trouble to power generators but may come as a boon to distribution companies, especially state-owned utilities, which will see margin expansion.

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News Source : Business Standard

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