Perspectives on Indian Energy sector by Auctus Advisors Energy & Resources Practice

1. #EnergyPoV
Key insights and perspectives on the Indian
power sector by Auctus Advisors
27th April 2020
Auctus Advisors Private Limited
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© 2020 Auctus Advisors

2. © 2020 Auctus Advisors
#EnergyPoV
Energy consumption in India grew at 0.8% in FY20 and expected to
decline in FY21 by anywhere between 2% and 7%
India’s energy demand was growing at a
healthy pace between FY16 and FY19 as the
growth rate kept increasing from 4% to 6.9%
(Fig. 1 below). Thereafter, although FY20
started with a moderate growth in the first
quarter, the demand slowed considerably and
between Aug and Dec 19, India's electricity
demand fell for five straight months, reflecting
sluggish industrial activity amid an overall
economic slowdown. The country’s quarterly
GDP growth had slowed to a near 7 year low
in the Oct-Dec quarter of FY20, dragged down
by contraction in manufacturing activity. The
country’s energy consumption saw a gradual
uptick in the month of Jan 20 when the
demand rose for the first time in six months –
it increased by 3.2% percent y-o-y, led by
Maharashtra, Andhra Pradesh and Karnataka
— areas of significant industrial and
commercial activity.
By the middle of February, when we were on
track towards annual consumption of 1,318
BUs, an expected growth of 2.4% for FY20,
the demand again started falling sharply when
the COVID-19 pandemic began spreading
globally and impacted Indian economic output
as well. As the pandemic induced slowdown
intensified and the nation went into a lockdown
on 25th March, demand plummeted and
average daily demand went down from 3,605
MUs in the 2nd week of Feb to 2,763 MUs in
the 1st week of Apr. (Fig 2 below)
The actual consumption for the year which
was expected to be 1,318 BUs (growth of
2.4%) ended up at 1,298 BUs, just 0.8% higher
than that in FY19 (Fig 1). In just a month and
a half, this outbreak has reduced our annual
energy consumption by 20 billion units i.e.
1.6% of the previous year’s consumption.
Despite a gradual increase this week, the
energy consumption in the first 21 days of the
lockdown fell over 25% on a y-o-y basis. What
this suggests is that the extension of the
lockdown till 3rd May and beyond could result
in a significant impact to the energy demand in
FY 21. Even in the most optimistic scenario
where demand manages to reach the levels of
FY20 in a month after the lockdown is lifted,
we would see a decline of -2% in FY21. More
realistic scenarios will peg it between -5% to
-7%. The government needs to take
immediate measures to support the sector,
else several generators could turn into NPAs
in the coming months.