Power politics in times of pandemic | Opinion – analysis
Disruptions caused by coronavirus disease (Covid-19) highlight the importance of electricity for modern societies. A reliable electricity supply supports the essential services that sustain the social order and build individual preparedness during this blockade. Ironically, however, even when electricity can make us more resilient, electricity is also vulnerable to the pandemic. How is the Indian electricity sector located right now?
The problem is not on the supply side of providing enough power. Due to falling electricity demand in recent months, most domestic coal-fired power plants have more than enough coal to last 25 days. In addition, the coal supply chain and electricity generation have been declared essential services, exempt from the blockade. Renewable energy (RE) plants are not dependent on fuel.
The challenge comes from the shock of demand: efforts to flatten the Covid-19 curve have caused the electric charge to plummet. Energy demand has fallen about 25% nationally, and individual states reported declines of 15-30%. On the first day of the national close, the spot price of electricity fell to ~ 0.60 / KWh, hitting a three-year low. In the days to come, supply was much greater than demand, to the point that the price fell more than half.
The impact of this demand shock is twofold. First, the drop in demand is a direct consequence of the reduction in economic activities (the closure of commercial establishments, public institutions, transport, construction and manufacturing) and implies a lower commercial and industrial (C&I) burden on distribution companies. (discoms). While they lose a significant share of the cross subsidy burden, discoms spend more per unit (KWh) of electricity supplied (in part because they have to pay fixed charges to generators, even if they don’t use the power). Consequently, the hassles, reeling from lingering financial losses, will lose even more.
Second, the response to the pandemic has adversely affected the billing and collection operations of the discoms. Discomforts have extended payment deadlines in several states, and the chances of recovering fees later are uncertain because those who have lost their livelihood may request an exemption from the electricity bill. However, forcing recovery carries the risk of taking the poor off the grid.
To alleviate the inconvenience, the Center has directed a three-month moratorium on its fees to generators (except for RE generators) and transmission companies. This may be a temporary relief, but the loss of revenue implies an increase in delays in payments to generators that have accumulated to more than Rs 80,522 crore. Simultaneously, the additional financial losses from discoms are unlikely to pass to consumers, and will lead to an increase in their regulatory assets (a promise from the regulator that discoms can recover money from consumers in the future). Combined, the regulatory assets of the discoms were around Rs 77,000 crore at the end of the 2019 fiscal year.
Both effects raise the alarm of an imminent financial crisis in the sector. For those who observe the sector, this is a deja vu moment. The sector is ready for another rescue. A bailout can be a formidable task for governments, given the fiscal stress due to the blockade and the planned stimulus. Even before the pandemic, the debts of the discoms had grown to the level of the last bailout under the Discom Ujwal Yojana Guarantee. Failure to act in a timely and appropriate manner can impede the reliable supply of electricity required to restart the economy.
When planning a response, the impacts of the pandemic offer some ideas for the future of electricity. First, it provides an imminent load migration to RE test case. As ER costs have decreased, the chances have increased that high-paying consumers will go offline. The blockade provides an indication of the consequences, that is, what happens when the industry no longer provides a cross-subsidy to households and agriculture? Will the experience put pressure on alternative ways of managing subsidy demands? There are some efforts to offer the low-cost benefits of RE directly to the poor through capital grants for solar panels, solar pumps, and solar power supplies, thus reducing the increasing burden of subsidies on discoms. Will the pandemic experiences lead to a change from the electricity tariff subsidy to the electricity infrastructure subsidy so that RE helps the poor?
Second, the crisis creates an impetus to find technological solutions to interruptions in the operation of the system. Although unintentional, Prime Minister Narendra Modi’s call to turn off the lights on April 5 was exemplary proof of the network’s balance in the face of sudden changes in demand. Will the network’s ability to handle a 27% (31 gigawatt) swing in demand alleviate concerns about integrating the RE variable? In another example, smart meters, which are pressed to verify the loss of the discoms, can be used to increase the resistance of the discoms in billing and collection.
Finally, the choice between a centralized and networked electrical system and a network of decentralized systems is relevant. Decentralized systems, advocated for faster energy transition, are also believed to be operationally resilient. Will the pandemic experience provoke a reconsideration of the electrical energy structure?
The electrical system has been shaken by the pandemic. But a viable electrical system that can ensure a reliable supply is also crucial to recovery. Time to think about how to ensure that electricity is pandemic-proof.
Ashwini K Swain is a member of the Policy Research Center
The opinions expressed are personal.