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PANDEMIC WITH COVID19 AND CORRESPONDING IMPACT IN INDIAN POWER SECTOR

In these troubling times of ‘social distancing’ and ‘working from home’, the centrality of electricity in powering our current and future societies is more evident than ever before. However, the power sector also is not immune to the adverse effects of the pandemic. The long-term impact of the current situation would only become apparent with time. Nevertheless, some early impacts of COVID-19 on Indian power sector are already becoming evident. An effort is being made to assess the impacts to create a basis for future discussion. This study may also help to reduce the adverse effects and better preparing the sector to take curative actions if the same situation occurs in future.

The second world war is a matter of past where the man made crisis caused a death toll of 80- 90 million people putting the existence of the world in question, but the recent havocs like the fall of the Berlin Wall or the collapse of Lehman Brothers, the coronavirus pandemic is a world-shattering phenomenon which has started now and we can only imagine today its far-ranging consequences.

The Covid-19 coronavirus was first identified in China’s Hubei province in December 2019 and has since become a global health threat, impacting 209 countries and triggering the World Health Organisation (WHO) to declare it a global pandemic. The COVID-19 lockdown has led to shut down of all but essential commercial activities across the country. Approximately 1.35 billion citizens are obliged to remain within the confines of their homes and, in many cases, only allowed to work from home. Consequently, the electricity demand from industrial and, commercial customers has reduced significantly while the residential demand is expected to have increased. According to the Power System Operation Corporation of India (POSOCO), The energy met on March 16th, 2020 – which can be considered as a business-as-usual scenario – was 3494 MU as compared to 3113 MU on March 23rd, 2020 a day of voluntary curfew. It further reduced to a range between 2600-2800 MU between March 25th to March 31st, 2020. This trend is illustrated in Figure 1.

The first case of the 2019–20 coronavirus pandemic in India was reported on 30 January 2020, originating from China. As of 9th April 2020, the Ministry of Health and Family Welfare have confirmed a total of 5,865 cases, 478 recoveries and 169 deaths in the country. It can be well assumed that the number of infections could be much higher as India's testing rates are among the lowest in the world. With the insufficient health care support, the only way to prevent the spread of such contagious disease is social distancing which the Prime minister of India had reiterated umpteen times and also declared total lock down of the country for three weeks from 25th March 2020 to prevent spread of the deadly disease. However, depending on the actual situation, he also mentioned of the possibility of the lock down period. Figure 1: Daily energy met (MU) In India, distribution utilities have a lower tariff for domestic and agricultural consumers, sometimes the average is less than the average cost of supply as compared to that for commercial and industrial consumers. Table 1 provides the electricity tariff rates in Delhi for selected consumer categories to highlight these Thus, for several distribution companies, the lower tariff‐paying consumers are cross‐subsidized by commercial industrial consumers. Category Fixed Charge (₹ /KVA/Month) Energy Charge (₹ /KWh) Industrial 250 7.75 Single point delivery supply for Group Housing Societies 150 4.50 Figure 1: Daily energy met (MU) In India, distribution utilities have a lower tariff for domestic and agricultural consumers, sometimes the average tariff is less than the average cost of supply as compared to that for commercial and industrial consumers. 6 | CCAI Monthly Newsletter March 2020

Table 1 provides the electricity tariff rates in Delhi for selected consumer categories to highlight these differences. Thus, for several distribution companies, the lower tariff-paying consumers are cross-subsidized by commercial and industrial consumers.

Category Fixed Charge (₹ /KVA/Month) EnergyCharge (₹ /KWh)

Industrial

250

Single point deliverysupply forGroup Housing Societies

150 7.75

4.50

and locational level. Finally, during this period, critical infrastructure such as electricity networks would have to be run with minimum employees this will have a long-term negative impact on operation and maintenance activities and management customer of relationship.

As stated earlier, the trade on the wholesale power market comprises just 4.3 per cent of the total electricity transactions. However, the transactions through the power exchanges have grown over the last decade. The Indian Energy Exchange (IEX) has seen a growth from 2616 MU in FY 2009 to 52,241 in FY 2019.

Agriculture

125 1.50

T able 1: Electricity Tariff Schedule for FY(2019-20) – DERC

Electricity tariff in West Bengal for few consumers shows that the Lock Down is heavily impacting their commercial and Industrial sections which are revenue positive Figure 2: Share of market segments in total electricity generation 2018-19 (Source: CERC)

Category Fixed Charge (₹ /KVA/Month) EnergyCharge (₹ /KWh) Industrial 384 7.20 Commercial 30 (TOD) 7.74/9.28/6.58

Domestic 15 6.64 Table 2. Brief of Tariff as per WBERC 2017-2018, Average Cost of Supply if Rs 7.55/Kwh Thus, firstly, a key risk from the COVID-19 pandemic for the already struggling distribution companies in India arises from the loss of revenues due to reduction of demand from the commercial and industrial customers as well as the inability to cover the crosssubsidies provided to the lower-tariff paying consumer. Secondly, the utilities would also have to account for the expense to comply with any ‘must buy’ commitments that they have with generators with long-term power purchase agreements. The true and full extent of this risk would only be known once a quantitative analysis is conducted when this crises situation is contained. Thirdly, at an operational level, distribution companies would have to account for deviation in demand and supply patterns at a temporal Until now, the trade in the wholesale market is in four market segments 1) Day-Ahead Market 2) Term Ahead Market and 3) Renewable Energy Certificates 4) Energy-saving certificates. Recently, the Central Electricity Regulatory Commission (CERC) finalized the regulations for implementing real-time markets. This half-hourly market will enable intra-day trade of electricity, allowing adjustment of generation and consumption profile during the day. Before the COVID-19 pandemic, it was announced by CERC that the real-time market would be operational from April 1st, 2020. However, the starting date has now been delayed, presumably the date will be rescheduled after restoration of normalcy. Some required trials are also required prior to putting it in practice and hence the date may take a longer to get finalised. Delay in the real-time market implementation is likely to have a serious, adverse impact on the Indian power market with the further possibility of renewable integration with price volatility. Another impact of the COVID-19 pandemic on the power markets is in terms of the market dynamics. Following a slump in the clearing volume and the market-clearing price, as an effect of lock down process, the obvious measures taken by the government as a response to COVID-19, the uncertainty in price has been impacting the producers and traders. Figure 2: Share of market segments in total electricity generation 2018‐19 (Source: CERC) Until now, the trade in the wholesale market is in four market segments 1) Day‐Ahead Market 2) Term Ahead and 3) Renewable Energy Certificates 4) Energy‐saving certificates. Recently, the Central Electricity Commission (CERC) finalized the regulations for implementing real‐time markets. This half‐hourly market intra‐day trade of electricity, allowing adjustment of generation and consumption profile during the day. COVID‐19 pandemic, it was announced by CERC that the real‐time market would be operational from April However, the starting date has now been delayed, presumably the date will be rescheduled after restoration normalcy. Some required trials are also required prior to putting it in practice and hence the date may to get finalised. Delay in the real‐time market implementation is likely to have a serious, adverse impact power market with the further possibility of renewable integration with price volatility. Another impact of the COVID‐19 pandemic on the power markets is in terms of the market dynamics. slump in the clearing volume and the market‐clearing price, as an effect of lock down process, the obvious taken by the government as a response to COVID‐19, the uncertainty in price has been impacting the producers traders. Thus, the reduction in demand due to the lockdown is reflected in the volumes traded on the market and the clearing price. 4

Thus, the reduction in demand due to the lockdown is reflected in the volumes traded on the electricity market and the clearing price. ity generation space, with around 90 giga watt (GW) coal-fuelled capacity based on Chinese power generation equipment.

Another point of reference is the price and clearing volume in 2019. On March 22nd, 2020, the day of voluntary lockdown, the clearing volume was 97.05 GWh, and the clearing price was 2195.48 ₹ /MWh. In comparison, on the same day in 2019, the clearing volume was 107.98 GWh, and the clearing price was 2816.18 ₹ /MWh. From the start of the lockdown, on March 25nd to April 1st 2020, the average clearing volume was 104.27 GWh compared to 130.24 GWh in 2019 during the same period. Similarly, the average market clearing price was 2155.93 ₹ /MWh in 2020 as compared to 3371.025 ₹ /MWh in 2019 for the same period. Another point of reference is the price and clearing volume in 2019. On March 22nd, 2020, the day of voluntary lockdown, the clearing volume was 97.05 GWh, and the clearing price was 2195.48 ₹ /MWh. In comparison, on the same day in 2019, the clearing volume was 107.98 GWh, and the clearing price was 2816.18 ₹ /MWh. From the start of the lockdown, on March 25nd to April 1st 2020, the average clearing volume was 104.27 GWh compared to 130.24 GWh in 2019 during the same period. Similarly, the average market clearing price was 2155.93 ₹ /MWh in 2020 as compared to 3371.025 ₹ /MWh in 2019 for the same period. With supply chains being disrupted, this installed and under-construction capacity has been placed with Chinese manufacturers such as Dongfang Electric, Shanghai Electric and Harbin Power, such Chinese equipment and their operation and maintenance, given the strategic importance of such power projects. This comes in the backdrop of India’s domestic power demand, expected to go up with more people staying indoors, given the three-week nationwide lockdown in the world’s largest such exercise aimed at stemming the spread of coronavirus. It has been observed that about 62 GW of under-construction coal fuelled capacity, orders for 30% or 18.6 GW has been placed with Chinese manufacturers. Apart from competitive prices, the developers were attracted by aggressive financing options, which involved not only low interest rates, but also relaxed covenants. To be sure, commercial and industrial electricity demand is likely to come down given the expected shift in electricity load patterns that also comes in the backdrop of the onset of summer. Also, given India’ installed power-generation capacity of 368.69 GW, the disruption in supply chain may not have an immediate impact on the Indian power markets.

5

India’s peak electricity demand came down to 145,495 MW on 23 March from 163,729 MW on 20 March. India’s peak demand in FY19 was 168,745 MW and touched an all-time high of 176,724 MW in April last year. The heat of Covid-19 is visible in coal based conventional power as the immediate effect but the impact will be far more in the target of 175 GW renewable generation in India.

Cleared Volume (above) and Market Clearing price (below) for IEX between March 17th – April 1st, 2020. According to data collated by the Indian Energy Exchange (IEX), the demand for electricity has also came down resulting in an average price of Rs1.95 per unit for electricity traded on 25 March on the exchange market. The all‐time high for electricity in the spot market was ₹18.2 per unit for 4 October 2018. Of the estimated 1,200 billion units (BU) of electricity generated in India, the short‐term market comprises 130‐150BU. Outbreak Covid‐19, which so far is being considered as an imported disease from China, has now cast doubts over a part of India’s conventional electricity generation space, with around 90 giga watt (GW) coal‐fuelled capacity based on Chinese power generation equipment. With supply chains being disrupted, this installed and under‐construction capacity has been placed with Chinese manufacturers such as Dongfang Electric, Shanghai Electric and Harbin Power, such Chinese equipment and their operation and maintenance, given the strategic importance of such power projects. This comes in the backdrop of India’s domestic power demand, expected to go up with more people staying indoors, given the three‐week nationwide lockdown in the world’s largest such exercise aimed at stemming the spread of The coronavirus outbreak that started in China may also impact India’s green energy trajectory, with around 3 giga watt (GW) of solar projects, worth ₹16,000 crore. The power project developers in India, who source solar modules from China, plans to declare force majeure on meeting project completion deadlines because of supply disruptions caused by the coronavirus outbreak. The government later clarified that the disruption of the supply chains due to spread of corona virus in China or any other country will be covered in the Force Majeure Clause (FMC). Again the renewable energy sector, apart from China, major concerns revolve around global supply chains, Cleared Volume (above) and Market Clearing price (below) for IEX between March 17th – April 1st, 2020. According to data collated by the Indian Energy Exchange (IEX), the demand for electricity has also came down resulting in an average price of Rs1.95 per unit for electricity traded on 25 March on the exchange market. The all-time high for electricity in the spot market was ₹18.2 per unit for 4 October 2018. Of the estimated 1,200 billion units (BU) of electricity generated in India, the short-term market comprises 130-150BU. Outbreak Covid-19, which so far is being considered as an imported disease from China, has now cast doubts over a part of India’s conventional electric

which are considerably slowing down production. Sectors such as the global wind industry are already seeing logistical delays. Wind Europe CEO Giles mentioned that Covid-19 would likely to cause delays in the development of new wind farm projects which could cause developers to miss the deployment deadlines in countries’ auction systems and face financial penalties. A Solar Power spokesperson of Europe stated that the situation has highlighted the need to have local manufacturing facilities along the value chain in Europe to bolster security of supply, especially when taking into account the fact that solar is considered by experts to be the main European long-term power generation source. It may be noted that European countries have started the journey long back whereas, in India, we have just started the journey. In solar sector, not only India but a major part of the European countries also import solar panels from China. In this connection, a European Renewables Grid Initiative spokesperson stated that as there no solar panel shipments from China, they need to work with a delivery bottleneck and subsequent delay of many projects. In India too, we find the similarities between the current health crisis and the climate crisis. India can learn from what we are currently going through and the consequences of acting too late. If that is the case, the current crisis might actually mean a boost for renewables in the medium term. The International Renewable Energy Agency (IRENA) believes that the pandemic, while threatening global supply chains in the power sector, will not be able to stop the industry from transitioning to net-zero CO2 emissions. IRENA director-general Francesco La Camera said: “The outbreak of Covid-19 threatens global supply chains in many sectors and is therefore likely to have an impact on renewable energy. The severity and duration of both situations remain to be seen in future. In India, it may be assumed that the lofty target of implementation of 175 GW RE power by 2022 may not be achieved in full quantum, however even in such case, the thermal sector has well reserve capacity which must be able to compensate the shortfall, if any. India, being a signatory of Paris protocol must not be oblivious towards environment and the possible threat of climate change, therefore the implementation of FGD and clean coal technology must be made mandatory to the extent possible and the efficient generators will only run with a fair price competitive mechanism. If we shift our vision from the power sector, it may be observed that the pandemic will strengthen the state and reinforce nationalism. Governments of all types will adopt emergency measures to manage the crisis, and many will be loath to relinquish these new powers when the crisis is over. In global context, COVID-19 will also accelerate the shift in power and influence from West to East. South Korea and Singapore have responded best, and although the problem started in China, it has reacted well after its early mistakes. The response in Europe and America has been slow and less responsible as represented with huge death toll which tarnishing the aura of the Western brand. In the economic front, apprehension of global recession is also putting the developing countries like India under a great threat of survival. The forecasting of possible job losses of 20 million workmen and 20- 25% of job cut in executive strength in India is posing extensive financial crisis in India. Unless, the Government and the world leaders come forward in rescue of the situation, the degree of financial slump will take a long time to recover in countries like India. In short, COVID-19 will create a world that is less open, less prosperous, and less free. It did not have to be this way, but the combination of a deadly virus, inadequate planning, and incompetent leadership has placed humanity on a new and worrisome path. It seems highly unlikely in this context that the world will return to the idea of mutually beneficial globalization that defined the early 21st century. And without the incentive to protect the shared gains from global economic integration, the architecture of global economic governance established in the 20th century will quickly atrophy. It will then take enormous selfdiscipline for political leaders to sustain international cooperation and not retreat into overt geopolitical competition.

About the author: Sankar Mukhopadhyay a graduate in Electrical Engg. of Jadavpur University, Kolkata and has 36 years of experience in power sector in GEC, Tata Power and CESC Limited. Since last ten years, he is heading the Asia Institute of Power Management. He has proven expertise in business development related to power and Energy sector. He is a Chartered Engineer of the European Council, the Chairman of the Institute of Engineers and Technologists (IET) and an Energy Auditor. He has also worked with Renewable Energy and passionate on sustainability.