Impact of lockdown on India’s electricity sector

Impact of lockdown on India’s electricity sector

The lockdown imposed to control the spread of the coronavirus pandemic also brought clear benefits for the environment globally and has possibly led to the largest reduction in carbon emissions since the 2008 economic crisis. India, the third largest energy consumer in the world, has seen the steepest reduction in its energy and electricity demand since decades. For a country relentlessly electrifying several million new households each year, while also trying to withdraw from its addiction to coal-based power, the covid-19 pandemic has inadvertently revealed that India might be fast approaching its peak coal consumption. The lockdown has also shown the reliability of the electricity grid facing major fluctuations in energy demand and its ability to take up energy supply from a slightly more varied mix of generation sources. 

Impact of the coronavirus pandemic on electricity demand

Several states in India had started enforcing precautionary measures from early March, as part of their efforts to slow the spread of the new coronavirus. Once the news of heavy death toll started pouring in from overseas, India progressively increased restrictions and finally enforced a nation-wide strict lockdown on its 1.3 billion citizens – the largest such measure in history. Industries, commercial enterprises and transport services came to a grinding halt and people were confined to their homes. This led to an unprecedented drop in electricity demand, a rare situation, in a country where electricity demand has been projected to increase by 6% every year until 2030.

According to the data from the National Load Dispatch Centre (NLDC), electricity demand plummeted by about 22-24% within the first ten days of the imposition of stringent measures, on March 25th 2020. On the 1st of May, the peak demand for electricity was down by 30,418 MW (19%) while the generated electricity was 633 Million Units (18%) lower if compared to early February. During the month of April 2020, the peak demand and the generated electricity dropped by 21% and 22% respectively, when compared to the same period in the past year.  In other words, the reduction in electricity consumption in India during the 40 plus days of lockdown* is equivalent to the consumption of Germany during the summer months. 

As the pandemic erodes demand for electricity, the electricity system operators are constantly balancing demand and supply in real time, and reviewing the energy mix of renewable and non-renewable energy sources needed to match the new demand curve. While the overall demand has drastically dropped, the load of domestic consumers has increased marginally. The grid operators therefore had to rely on more dispatchable power such as hydro and gas-based generation which can be turned on and off easily according to the new daily load curve, while cutting down supply from base load coal power plants. 

The fall in demand has come at a time when the power distribution companies are already suffering from subdued electricity consumption from industries due to the lower than expected economic growth during the past two quarters, worsened by revenues still owned by the state governments to the Distribution Companies. At the upstream, the thermal power generation companies that are already operating plants under their capacities (called plant load factor or PLF), have drastically reduced their uptake of coal from the pitheads. The COVID-19 pandemic and the subsequent total lockdown is now driving the final nail to the already battered coal sector. The ripple effect of the drastic fall in demand for electric power has led to an abysmal fall in PLF of thermal power plants to a 5-year low of near 50%, thereby increasing the per-unit cost of thermal power and making it less competitive than renewable energy at the spot market. At the other end of power distribution, cash strapped Distribution Companies are reeling under revenue loss because of closed industries and commercial entities and are invoking force majeure clause (Act of God) in attempts to reduce their purchases from power plants to much below what they are liable, as per power purchase agreements. They are instead turning towards spot energy markets where electricity can be bought at much lower prices.  With the stocks of coal piling up to historic levels of over 100 million tons, Indian coal sector is now looking at a bleak future.

Reduced energy generation and change in energy mix

By the end of April, power generated by coal power plants fell by over 12%,  if compared to before the nation-wide lockdown. In contrast, hydro power increased by 43% while power from other renewable energy sources increased by 20%, during the same period (Figure 1).

The share of coal in the energy mix fell from a 75% high in the first week of March to 63% in the first week of May. Meanwhile, hydro power and other renewable energy sources have steadily increased their share by 14% and 12% respectively. Also accounting for the contribution of nuclear energy, non-fossil electricity during the lockdown accounts for 29% of India’s electricity generation – a number now much closer to India’s INDC target of 40% non-fossil fuels-based electricity by 2030. 

Rise of renewable energy sources and fall in carbon emissions

Renewable sources of power such as biomass, wind, solar and small hydropower have stayed relatively immune to the detrimental impact of reduced demand on the power generation sector. Thanks to its ‘must-run status’, renewable power cannot be curtailed or shut down under any circumstances. Renewable energy accounted for about two-thirds of India’s new power installations in 2019, proving that coal-based power is fighting a losing battle against renewables which were being auctioned at prices almost half that of coal. Now, the Covid pandemic has tipped the scales further in favor of the renewables. Conducive government policies and weather conditions for electricity production from solar and hydropower have ensured that coal could no more compete with renewables either from a financial perspective or from a reliability perspective. Wind power generation too is expected to pick up once the seasonal monsoon winds will begin to flow, usually by the end of May. Large capacities of coal power are expected to remain under-utilized for the rest of the year.  Although coal will still be used to meet base load demand, any new coal power capacity addition in a post-Covid investment environment, will be subject to more intense financial scrutiny. The lockdown has proven that coal power is less flexible to major disruptions in consumption patterns than other sources and can also be less competitive in the spot market.  The crisis has accidentally revealed India’s current excess capacity in coal power and made it evident that the future electricity grid must be made more reliable with a larger share of storage, renewables, and dispatchable power. The pandemic has accelerated the timeline for the peaking of coal-based power generation in India.

A slowing economy, the significant fall in power generation and an increased share of renewables are set to cause the steepest fall in emissions reductions, ever recorded in the Indian power sector. Daily electricity generation fell by 24% in March, but the daily carbon emissions from power generation fell by a whopping 32%, owing to an increased share of non-fossil fuels in the energy mix. With the nation-wide lockdown already being extended twice before mid May, and an extremely gradual easing of lockdown measures for industrial and commercial activities in the pipeline, it is very likely that 2020 will be the year that India sees an annual reduction in carbon emissions for the first time in several decades. 

Impact on the electricity grid

Reliability of the grid has always been the Achilles’ heel of the power sector in India. However, thanks to recent modernization and automation of key functions, the grid could function seamlessly despite the several challenges posed during the lockdown. The state-owned Power System Operation Corporation (POSOCO) which operates the national load dispatch center has been able to respond to the challenge of falling demand, while balancing the demand with a varied mix of generation sources during the entire lockdown period. Its ability was further put to test when India’s prime minister has called on the citizens to switch off their lights at 9 pm on April 5th, as a sign of solidarity with the country’s healthcare and emergency services workers.

The successful management of such a rapid fluctuation in peak loads revealed the technical readiness of the grid operator. It also showed how India’s investment in flexible peaking capacities such as pumped hydro and gas-based power generation has enabled the grid to respond to variability in demand, without affecting the operating frequency. Real-time price signals to enable injecting of power in teh grid at lower available costs, and more flexible peaking capacities, such as storage, are needed for greater grid stability and for a better uptake of low cost renewable energy into the grid.