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2020
POWER
BUSINESS STANDARD
While the 2003 Act opened the power generation sector for private players, the current Bill has proposed
private power distribution franchisees. This paper had reported that the ministry of power was pursuing
states to join hands with private power distributors on franchisee basis to improve their revenues.
The bill has also put an end to subsidised power rates. It has revised the provision of power tariff
determination and proposed that all state electricity regulatory commissions (SERCs) “to determine tariff
for retail sale of electricity without any subsidy under section 65 of the Act”.
The Bill has also noted that cross-subsidy and surcharges levied on industrial consumers should be
reduced. These charges are levied on industrial consumers of a state to cross-subsidise the free or
subsidised power given to certain section of consumers.
Recognising that power tariff is not cost reflective and has several subsidy components, the new Bill has
introduced provisions on tariff determination.
The Bill will impose restrictions on deferring revenue recovery or regulatory assets.
Regulatory assets are expenses of power distribution companies (discoms) which are recoverable in future
power tariff hikes but the SERCs do not take them into consideration while calculating current electricity
tariffs. According to an estimate by the ministry of power, discoms lose Rs 22,000 crore revenue annually
due to the creation of new regulatory assets.
The Centre has also strengthened the regulatory environment in the power sector. Apart from the existing
central and state electricity regulatory commissions, the Bill has introduced a new regulatory body. An
Electricity Contract Enforcement Authority will be formed for dispute resolution relating of contracts for
To improve the payment mechanism of states, the Bill has proposed that load despatch centres would be
empowered to oversee the ‘Payment security mechanism’ before power is dispatched. The mechanism
makes it mandatory for discoms to prepay for electricity through letter of credit.
As India gears for energy transition with increasing share of renewable in the energy mix, the Bill has
proposed a National Renewable Energy Policy. This would be prepared in consultation with states “for
the promotion of generation of electricity from renewable sources of energy and prescribe a minimum
percentage of purchase of electricity from renewable and hydro sources of energy”.
With hydropower now being recognised as renewable, the Bill has also proposed that all SERC will
specify trajectory for ‘Renewable and Hydro Purchase Obligation’ at definite time period.
BUSINESS STANDARD
Non-pithead power generation units (those located away from coal mines) have 34 days' coal stock but
most of them are under reserved shutdown. The average plant load factor (PLF) or operating ratio of
thermal units has fallen to decade low of 58 per cent last fiscal – indicating demand glut. Reserved
shutdown refers to pausing power generation in lieu of low demand.
Power demand last month fell by close to 30 per cent from the day nationwide lockdown was announced.
States are now resorting to reduced power purchase and buy from cheaper units. Generation units with
higher variable cost (mostly the non-pithead units) aren't finding any takers. This includes several units
of NTPC Limited, India’s largest power generator, states’ own units and privately owned units which are
away from coal mine.
Tariff of thermal power plants has two components – fixed cost which is the capital cost and variable cost
which is the fuel cost. Under a long term power purchase agreement (PPA), buyers are obliged to pay the
fixed cost to generators even if they do not procure power during a certain period.
CII which has prepared a White Paper on India’s power sector has estimated, thermal power generators
could face additional Rs 20,000-25,000 crore cash crunch. It has also estimated a loss of Rs 30,000-40,000
for the power distribution companies due to fall in consumption and delayed collections due to temporary
suspension of offline collections, and cash crunch expected post lockdown relaxation.
“The liquidity gap may also transmit to other players in the value chain, namely conventional and
renewable generators, transmission licensees and vendors/ service providers in our sector. This could
impact their ability to buy fuel, meet debt service obligations and ensure seamless operations,” CII said.
Power generating units are not opting for shutting down their operations as they will end up losing their
fixed cost recovery. India Ratings in its report said, the demand glut is unlikely to impact the fixed cost
recovery of power plants, “as most of them are sitting on a healthy stock of coal, which allows for capacity
declaration for fixed cost recovery.”
However, it further said, given the muted demand scenario and the must-run status for the hydro,
renewables and nuclear power, the thermal generators would stand to suffer more.
In the coming months as liquidity crunch worsens and power demand picks up, sector executives fear
most units would be unable to buy coal. “Already a lot of private units are not picking coal as they do not
have surplus cash,” said a senior executive.
FINANCIAL EXPRESS
Industry body CII on Friday said discoms are likely to suffer a net revenue loss of around Rs 30,000 crore
and liquidity crunch of about Rs 50,000 crore due to the coronavirus-induced nationwide lockdown.
According to government data, the discoms owe Rs 92,602 crore to Gencos as of February, 2020.
According to the report, power sector, one of the essential services under the lockdown till May 3, is
battling the twin issues of demand and liquidity compression. Latest data from Power System Operation
Corporation Limited (POSOCO) indicates that total demand per week between March 23 and April 12
was 18 BU (billion units), compared to 23 BU during the week of March 9-15 (before Janata Curfew and
lockdown), 25-28 per cent reduction in demand.
The further extension of the lockdown could result in additional demand compression of 15 to 20 BU,
implying a net revenue loss of Rs 25,000 to Rs 30,000 crores for the discoms, it said This will further
increase the liquidity crunch to Rs 45,000 to 50,000 crores, in addition to the Rs 90,000 crore dues pending
by the discoms to generating companies’ pre-lockdown, it said.
”Recent experience suggests that a financial restructuring package without insistence on structural reforms
leads to temporary alleviation of the problem in the sector followed by eventual recurrence of the core
problems of liquidity. We therefore propose that the post COVID-era is the right time to undertake an
ambitious overhaul of the sector…”, said Chandrajit Banerjee, Director General, CII in the report.
The report highlighted that the thermal generators could face additional Rs 20,000 crore to 25,000 crore
cash crunch. Renewable energy generators have been bearing the brunt of power curtailments, overdue
payments by state discoms of Rs 10,000 crores and policy uncertainty, it said.
Further, 20 to 25 per cent of debt of renewable energy projects comes from overseas lenders, to whom the
3-month moratorium by RBI will not apply, it pointed out. Transmission companies are facing delays in
on-going projects as lockdown has affected the movement of manpower and supply resulting in delays
and the manufacturing sector employing 20 lakh people across over 4000 SMEs could be at stake, it said.
In such a scenario, it becomes increasingly important to inject liquidity in the sector to ensure continuous
supply, power generation viability and robust industrial recovery post lockdown, it suggested. CII’s white
paper Sustaining India’s Power and Renewable Energy Sector analyses impact of COVID-19 on the sector
with the demand reduction coupled with delays in collections.
Shot term measures include ensuring short-term liquidity management like creation of special line of
credit through PFC/REC to discoms. Secondly, the government can allow deferral of payments of indirect
taxes and for mitigating impact of delays in on-going renewable projects it suggested? an increase in tariff.
It also asked to develop a central government-led funding scheme for accelerating the rollout of smart
metering (investment of Rs 1.5 lakh crores over 4 to 5 years) and adoption of digital solutions for
improving operational decision-making among discoms.
HOME
ET REALTY
This comes after Ministry of Home Affairs on April announced continuation of works in construction
projects, within the limits of municipal corporations and municipalities, where workers are available on
site and no workers are required to be brought from outside from April 20.
India Cements in a BSE filing said that the company is in the process of obtaining the requisite approvals
from the respective state governments and other appropriate authorities for resuming the operations of its
plants at various locations, in a phased manner.
"While resuming its operations, the company will abide by all directives/guidelines including standard
operating procedure for social distancing and other precautionary measures stipulated by the concerned
authorities," it said in the regulatory filing.
Ambuja Cement is also seeking necessary permissions/approvals from the relevant government
authorities for resumption of operations at various locations from April 20, 2020 in a phased manner, it
said in the BSE filing.
ACC in its regulatory filing said it shall resume operations, w.e.f. April 20, 2020 in a phased manner,
subject to requisite permissions, other relevant considerations and in accordance with the guidelines.
Similarly, JK Lakshmi Cement said in the BSE filing that the company is seeking necessary approvals
from the relevant state governments authorities for resuming operations at our various plant locations.
Prism Johnson has also resumed mining operations at its cement plant at Satna. After bringing down the
level of finished goods inventory to the desired level and subject to requisite permissions, the company
intends to resume operations in a phased manner at some of its locations across the country starting from
April 20, 2020.
The company is closely monitoring the situation which is evolving every day and would take necessary
actions as may be required in the then prevailing circumstances, it said in the regulatory filing.
“To ensure business continuity, we are compelled to seek an increase of payment terms of our vendor
partners by 45 days over and above the prevailing payment terms,” it said in a letter. “We do realise that
this will have an impact on our vendor partners, but wish to assure you that we will try and revert to
normal business as soon as the situation allows and all due payments will be made good.” ET has seen a
copy of the letter.
Tata Steel told ET it had built a relationship based on trust and transparency with various stakeholders
and that these were unprecedented times that needed a collaborative approach.
The 40-day national lockdown, scheduled to end May 3, has hit the production of steel, with Tata Steel
temporarily closing its downstream units in Maharashtra and Uttar Pradesh. However, its plants in
Jamshedpur and Kalinganagar are currently operational. The shutdown of manufacturing units, curbs on
logistics and a sharp fall in demand have disrupted steel makers.
Tata Steel told vendors that while it remains operational, India’s largest steel maker has been facing
challenges in ensuring raw material availability and transportation. “The closure of several downstream
industries such as construction, real estate and auto has led to a significant reduction in demand of finished
steel products,” the letter said. “As the situation remains uncertain, several industries have invoked force
majeure and have halted their operations till further notice. Tata Steel has also been impacted by this
unprecedented situation.”
Likewise, Asian Paints has also sought to defer payments in a bid to conserve cash. It has sought support
from business partners “to increase payment terms by 30 days over and above the currently prevailing
At the end of September 2019, Asian Paints had Rs 530 crore in cash and cash equivalents and balances
with banks. “We are in touch with vendors with the request and trying to explore the possibilities of
extending credit,” a company official told ET. “The cash flows have been affected due to the ongoing
conditions of lockdown. This is a proactive measure to conserve cash as the situation continues to be
uncertain. This is a temporary step only. The company’s reserves are adequate to take care of the
situation.”
GLOBAL
“The closure of the last coal-fired power plant is a historic step: Austria is finally getting out of coal power
supply and is taking another step towards phasing out fossil fuels,” said Austrian Minister for Climate
Protection Leonore Gewessler, noting that the government wants to switch a 100% power supply based
on renewable energies by 2030. “This also gives us economic independence: We are currently spending
€10 billion on imports of coal, oil and gas.”
Statements from the Ministry of the Environment are similar. “Austria is moving a little further towards
climate neutrality,” said State Secretary Magnus Brunner.
With this step, the country may become a model for other European countries. “The conversion of the
location into an innovation site is a good example of how the path from the fossil energy world to an
innovative and renewable future can be taken,” added Brunner.
“On the way from old to new economy, Mellach remains an important location for us, which offers ideal
conditions for the development of future technologies,” said Verbund CEO Wolfgang Anzengruber.
Verbund will now develop Mellach into an innovation hub. A pilot plant for high-temperature electrolysis
and fuel cell operation for hydrogen production has already been set up. Large-scale battery storage
systems are also being tested for use as buffer storage, for example in ultrafast charging stations for
electro-mobility at the site, Verbund emphasized.
The country’s installed PV capacity must be increased tenfold over the next 10 years in order to achieve
100% green electricity target by 2030. According to “Europe Beyond Coal” surveys, 15 European
countries have already decided to phase out coal-based electricity generation, and 14 of them want to exit
coal by 2030.
Sources said the import quota was aimed at supporting China's mining industry and combatting lackluster
demand for Chinese domestic coal.
Officials at MIIT, NDRC, Guangxi customs, Qinzhou and Fangcheng ports were not immediately
available to comment.
"Chinese coal prices were down and trading volumes were largely below government expectation," a
southeastern China-based trader said.
The Import quota for Guangxi, located in Guangdong province, was around 24 million mt for 2020,
unchanged from last year, sources said.
The remaining quota of 6 million-7 million mt was shared between coking and thermal coal for local end-
users, market sources said.
The remaining quota will be distributed evenly over the rest of the year on a quarterly basis, sources in
China said.
The quarterly quota will be distributed to various local end-users on a priority basis to maintain normal
operations in the region, traders said.
"Larger local utilities will be given a larger portion of the quota while smaller local utilities, steel mills
and other end-users in the general industries will get a smaller share," a Singapore-based trader said.
China's first-quarter thermal coal imports were up 28% year on year, according to data from the country's
General Administration of Customs.
Hence various coal-consuming regions in south and southeastern China would have a disproportionate
amount of import quota remaining for the rest of the year, a southeastern China-based trader said.
Price competition between seaborne and domestic coal is expected to continue for mid to high-CV coal
amid poor coal demand in China, market sources said.
Australian coal miners have lowered their expectation by $4/mt over this week due to overall bearish
market for the high-ash 5,500 kcal/kg NAR Australian coal and competitively priced Chinese domestic
coal, market sources said.
"If offers continue to persist above similar grades of Chinese coal, Australian coal will not be traded," an
Australia-based trader said.
Trades for 5,500 kcal/kg NAR grade of coal stabilized around Yuan 460-470/mt FOB Qinhuangdao ($65-
$66.40/mt) while trades for 5,000 kcal/kg NAR stabilized at Yuan 400-410/mt FOB Qinhuangdao
($56.50-$57.95/mt).
The impact is even more stark in the last month, with coal generation collapsing by almost one third (29%)
between 10 March and 10 April 2020 compared to the same period in 2019, making up only 12% of total
EU and UK generation. By contrast, renewables delivered almost half (46%) of generation – an increase
of 8% compared to 2019.
In total, demand for electricity across the continent is down by one tenth (10%) due to measures taken to
combat COVID-19, to its lowest level since the Second World War. The result is an unprecedented fall
in carbon emissions from the power sector, with emission intensity falling by almost 20% (19.5%)
compared to the same 10 March to 10 April period last year.
The analysis comes from the 'Wärtsilä Energy Transition Lab', a new free-to-use data platform developed
by Wärtsilä to help the industry, policy makers and the public understand the impact of COVID-19 on
European electricity markets and analyse what this means for the future design and operation of its energy
systems. The goal is to help accelerate the transition to 100% renewables.
Björn Ullbro, Vice President for Europe & Africa at Wärtsilä Energy Business, said: “The impact of the
Covid-19 crisis on European energy systems is extraordinary. “What we can see today is how our energy
systems cope with much more renewable power – knowledge that will be invaluable to accelerate the
energy transition. We are making this new platform freely available to support the energy industry to
adapt and use the momentum this tragic crisis has created to deliver a better, cleaner energy system,
faster.”
The figures mark a dramatic shift in Europe’s energy mix – one that was not anticipated to occur until the
end of the decade. The impact of the COVID-19 crisis has effectively accelerated the energy transition in
Ullbro added: “Electricity demand across Europe has fallen due to the lockdown measures applied by
governments to stop the spread of the coronavirus. However, total renewable generation has remained at
pre-crisis levels with low electricity prices, combined with renewables-friendly policy measures,
squeezing out fossil fuel power generation, especially coal. This sets the scene for the next decade of the
energy transition.”
In the UK, renewables now have a 43% share of generation (up 10% on the same 10 March to 10 April
period in 2019) with coal power down 35% and gas down 24%.
Germany has seen the share of renewables reach 60% (up 12%) and coal generation fall 44%, resulting in
a fall in the carbon intensity of its electricity of over 30%.
Spain currently has 49% renewables with coal power down by 41%.
Italy has seen the steepest fall in demand, down 21% so far.
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