Fitch Ratings expects India's electricity demand to drop by 4 per cent during the financial year ending March 2021 given the expectations of only a gradual pick-up in economic activity since pandemic-related lockdowns were relaxed in June.
The fall in demand is likely to result in lower load factors, mainly for coal-based power plants. The weak demand along with higher coal inventory led to India's coal imports falling by 22 per cent year-on-year in H1 20.
"We expect the credit profiles of state-owned distribution companies (discoms) to worsen further against weak demand from high-paying industrial customers due to the economic slowdown," said Fitch.
"The government's recent Rs 90,000 crore liquidity facility for discoms should help them pay the huge outstanding amount owed to generation and transmission companies," it said in the report titled 'India Power Watch H1 20'.
Fitch expects the pandemic-related supply chain and labour disruption to result in slower renewable-energy capacity additions during 2020.
Hybrid projects -- a combination of renewable and storage facilities -- are gaining traction in India to address the intermittent nature of renewable power and streamline integration with the grid while solar continues to lead capacity additions.
However, India added 1.8 gigawatts of renewable capacity in H1 20, down from an average of 6 gigawatts over the previous eight six-monthly periods. Generation companies can delay projects using force majeure clauses under power-purchase agreements because of the pandemic.
"We think the bleak mid-term electricity demand growth outlook and impediments in debt financing in light of weak counterparties will also affect capacity addition over next year," said Fitch.