The central government has enforced a nation-wide lockdown between March 25 and May 3 as part of its measures to contain the spread of COVID-19.  During the lockdown, several restrictions have been placed on the movement of individuals and economic activities have come to a halt barring the activities related to essential goods and services. The restrictions are being relaxed in less affected areas in a limited manner since April 20.  In this blog, we look at how the lockdown has impacted the demand and supply of electricity and what possible repercussions its prolonged effect may have on the power sector. 

Power supply saw a decrease of 25% during the lockdown (year-on-year)

As electricity cannot be stored in large amount, the power generation and supply for a given day are planned based on the forecast for demand.  The months of January and February in 2020 had seen an increase of 3% and 7% in power supply, respectively as compared to 2019 (year-on-year).  In comparison, the power supply saw a decrease of 3% between March 1 and March 24.  During the lockdown between March 24 and April 19, the total power supply saw a decrease of about 25% (year-on-year).

Figure 1: % change in power supply position between March 1 and April 19 (Y-o-Y from 2019 to 2020)

Sources: Daily Reports; POSOCO; PRS.

If we look at the consumption pattern by consumer category, in 2018-19, 41% of total electricity consumption was for industrial purposes, followed by 25% for domestic and 18% for agricultural purposes.  As the lockdown has severely reduced the industrial and commercial activities in the country, these segments would have seen a considerable decline in demand for electricity. However, note that the domestic demand may have seen an uptick as people are staying indoors.

Figure 2: Power consumption by consumer segment in 2018-19

Sources: Central Electricity Authority; PRS.

Electricity demand may continue to be subdued over the next few months. At this point, it is unclear that when lockdown restrictions are eased, how soon will economic activities return to pre COVID-19 levels. India’s growth projections also highlight a slowdown in the economy in 2020 which will further impact the demand for electricity.  On April 16, the International Monetary Fund has slashed its projection for India’s GDP growth in 2020 from 5.8% to 1.9%.

A nominal increase in energy and peak deficit levels

As power sector related operations have been classified as essential services, the plant operations and availability of fuel (primarily coal) have not been significantly constrained. This can be observed with the energy deficit and peak deficit levels during the lockdown period which have remained at a nominal level.  Energy deficit indicates the shortfall in energy supply against the demand during the day.  The average energy deficit between March 25 and April 19 has been 0.42% while the corresponding figure was 0.33% between March 1 and March 24. Similarly, the average peak deficit between March 25 and April 19 has been 0.56% as compared to 0.41% between March 1 and March 24.  Peak deficit indicates the shortfall in supply against demand during highest consumption period in a day.

Figure 3: Energy deficit and peak deficit between March 1, 2020 and April 19, 2020 (in %)

Sources: Daily Reports; POSOCO; PRS.

Coal stock with power plants increases

Coal is the primary source of power generation in the country (~71% in March 2020).  During the lockdown period, the coal stock with coal power plants has seen an increase.  As of April 19, total coal-stock with the power plants in the country (in days) has risen to 29 days as compared to 24 days on March 24. This indicates that the supply of coal has not been constrained during the lockdown, at least to the extent of meeting the requirements of power plants.

Energy mix changes during the lockdown, power generation from coal impacted

During the lockdown, power generation has been adjusted to compensate for reduced consumption, Most of this reduction in consumption has been adjusted by reduced coal power generation. As can be seen in Table 1, coal power generation reduced from an average of 2,511 MU between March 1 and March 24 to 1,873 MU between March 25 and April 19 (about 25%).  As a result, the contribution of coal in total power generation reduced from an average of 72.5% to 65.6% between these two periods.

Table 1: Energy Mix during March 1-April 19, 2020

Sources: Daily Reports; POSOCO; PRS.

This shift may be happening due to various reasons including: (i) renewable energy sources (solar, wind, and small hydro) have MUST RUN status, i.e., the power generated by them has to be given the highest priority by distribution companies, and (ii) running cost of renewable power plants is lower as compared to thermal power plants.

This suggests that if growth in electricity demand were to remain weak, the adverse impact on the coal power plants could be more as compared to other power generation sources.  This will also translate into weak demand for coal in the country as almost 87% of the domestic coal production is used by the power sector.  Note that the plant load factor (PLF) of the thermal power plants has seen a considerable decline over the years, decreasing from 77.5% in 2009-10 to 56.4% in 2019-20. Low PLF implies that coal plants have been lying idle.  Coal power plants require significant fixed costs, and they incur such costs even when the plant is lying idle. The declining capacity utilisation augmented by a weaker demand will undermine the financial viability of these plants further.

Figure 4: Power generation from coal between March 1, 2020 and April 19, 2020 (in MU)

Sources: Daily Reports; POSOCO; PRS.

Finances of the power sector to be severely impacted

Power distribution companies (discoms) buy power from generation companies and supply it to consumers.  In India, most of the discoms are state-owned utilities.  One of the key concerns in the Indian power sector has been the poor financial health of its discoms.  The discoms have had high levels of debt and have been running losses. The debt problem was partly addressed under the UDAY scheme as state governments took over 75% of the debt of state-run discoms (around 2.1 lakh crore in two years 2015-16 and 2016-17).  However, discoms have continued to register losses owing to underpricing of electricity tariff for some consumer segments, and other forms of technical and commercial losses.  Outstanding dues of discoms towards power generation companies have also been increasing, indicating financial stress in some discoms. At the end of February 2020, the total outstanding dues of discoms to generation companies stood at Rs 92,602 crore.

Due to the lockdown and its further impact in the near term, the financial situation of discoms is likely to be aggravated. This will also impact other entities in the value chain including generation companies and their fuel suppliers. This may lead to reduced availability of working capital for these entities and an increase in the risk of NPAs in the sector.  Note that, as of February 2020, the power sector has the largest share in the deployment of domestic bank credit among industries (Rs 5.4 lakh crore, 19.3% of total).

Following are some of the factors which have impacted the financial situation during the lockdown:

  • Reduced cross-subsidy: In most states, the electricity tariff for domestic and agriculture consumers is lower than the actual cost of supply. Along with the subsidy by the state governments, this gap in revenue is partly compensated by charging industrial and commercial consumers at a higher rate.  Hence, industrial and commercial segments cross-subsidise the power consumption by domestic and agricultural consumers.

  • The lockdown has led to a halt on commercial and industrial activities while people are staying indoors.  This has led to a situation where the demand from the consumer segments who cross-subsidise has decreased while the demand from consumer segments who are cross-subsidised has increased.  Due to this, the gap between revenue realised by discoms and cost of supply will widen, leading to further losses for discoms.  States may choose to bridge this gap by providing a higher subsidy.

  • Moratorium to consumers: To mitigate the financial hardship of citizens due to COVID-19, some states such as RajasthanUttar Pradesh, and Goa, among others, have provided consumers with a moratorium for payment of electricity bills. At the same time, the discoms are required to continue supplying electricity. This will mean that the return for the supply made in March and April will be delayed, leading to lesser cash in hand for discoms.

  • Some state governments such as Bihar also announced a reduction in tariff for domestic and agricultural consumers. Although, the reduction in tariff will be compensated to discoms by government subsidy.

  • Constraints with government finances: The revenue collection of states has been severely impacted as economic activities have come to a halt. Further, the state governments are directing their resources for funding relief measures such as food distribution, direct cash transfers, and healthcare. This may adversely affect or delay the subsidy transfer to discoms.

  • The UDAY scheme also requires states to progressively fund greater share in losses of discoms from their budgetary resources (10% in 2018-19, 25% in 2019-20, and 50% in 2020-21).  As losses of discoms may widen due to the above-mentioned factors, the state government’s financial burden is likely to increase.

Capacity addition may be adversely impacted

As per the National Electricity Plan,  India’s total capacity addition target is around 176 GW for 2017-2022.  This comprises of 118 GW from renewable sources, 6.8 GW from hydro sources, and 6.4 GW from coal (apart from 47.8 GW of coal-based power projects already in various stages of production as of January 2018).  

India has set a goal of installing 175 GW of Renewable Power Capacity by 2022 as part of its climate change commitments (86 GW has been installed as of January 2020).  In January 2020, the Parliamentary Standing Committee on Energy observed that India could only install 82% and 55% of its annual renewable energy capacity addition targets in 2017-18 and 2018-19. As of January 2020, 67% of the target has been achieved for 2019-20.

Due to the impact of COVID-19, the capacity addition targets for various sources is likely to be adversely impacted in the short run as:

  • construction activities were stopped during the lockdown and will take some time to return to normal,

  • disruption in the global supply chain may lead to difficulties with the availability of key components leading to delay in execution of projects, for instance, for solar power plants, solar PV modules are mainly imported from China, and

  • reduced revenue for companies due to weak demand will leave companies with less capacity left for capital expenditure.

Key reforms likely to be delayed

Following are some of the important reforms anticipated in 2020-21 which may get delayed due to the developing situation:

  • The real-time market for electricity: The real-time market for electricity was to be operationalised from April 1, 2020. However, the lockdown has led to delay in completion of testing and trial runs. The revised date for implementation is now June 1, 2020.

  • UDAY 2.0/ADITYA: A new scheme for the financial turnaround of discoms was likely to come this year. The scheme would have provided for the installation of smart meters and incentives for rationalisation of the tariff, among other things. It remains to be seen what this scheme would be like since the situation with government finances is also going to worsen due to anticipated economic slowdown. 

  • Auction of coal blocks for commercial mining: The Coal Ministry has been considering auction of coal mines for commercial mining this year. 100% FDI has been allowed in the coal mining activity for commercial sale of coal to attract foreign players. However, the global economic slowdown may mean that the auctions may not generate enough interest from foreign as well as domestic players.

For a detailed analysis of the Indian Power Sector, please see here.  For details on the number of daily COVID-19 cases in the country and across states, please see here.  For details on the major COVID-19 related notifications released by the centre and the states, please see here.  

On October 18, it was reportein the news that the central government has been given more time for framing rules under the Citizenship (Amendment) Act, 2019.  The President had given assent to this Act in December 2019 and the Act came into force in January 2020.   Similarly, about two years have passed since the new labour codes were passed by Parliament, and the final Rules are yet to be published.  This raises the question how long the government can take to frame Rules and what is the procedure guiding this.  In this blog, we discuss the same.

Under the Constitution, the Legislature has the power to make laws and the Executive is responsible for implementing them.  Often, the Legislature enacts a law covering the general principles and policies, and delegates the power to the Executive for specifying certain details for the implementation of a law.  For example, the Citizenship Amendment Act provides who will be eligible for citizenship.  The certificate of registration or naturalization to a person will be issued, subject to conditions, restrictions, and manner as may be prescribed by the central government through Rules.  Delay in framing Rules results in delay in implementing the law, since the necessary details are not available.  For example, new labour codes provide a social security scheme for gig economy workers such as Swiggy and Zomato delivery persons and Uber and Ola drivers.  These benefits as per these Codes are yet to be rolled out as the Rules are yet to be notified.

Timelines and checks and balances for adherence

Each House of Parliament has a Committee of Members to examine Rules, Regulations, and government orders in detail called the Committee on Subordinate Legislation.  Over the years, the recommendations of these Committees have shaped the evolution of the procedure and timelines for framing subordinate legislation.  These are reflected in the Manual of Parliamentary Procedures issued by the Ministry of Parliamentary Affairs, which provides detailed guidelines.

Ordinarily, Rules, Regulations, and bye-laws are to be framed within six months from the date on which the concerned Act came into force.   Post that, the concerned Ministry is required to seek an extension from the Parliamentary Committees on Subordinate Legislation.  The reason for the extension needs to be stated.   Such extensions may be granted for a maximum period of three months at a time.  For example, in case of Rules under the Citizenship Amendment Act, 2019, at an earlier instance, an extension was granted on account of the onset of the COVID-19 pandemic.

Activity

Timeline

  • Publication of Rules, Regulations, and Bye-Laws, where public consultation is required under the Act
  • A minimum of 30 days for public feedback
  • Consequently, for publication,
  • Three months, if the number of suggestions is small
  • Six months, if the number of suggestions is large
  • Publication of Rules, Regulations, and Bye-Laws, not requiring public consultation
  • Six months from the date on which the concerned Act came into force
  • Any extension for publication
  • A maximum of three months at a time

To ensure monitoring, every Ministry is required to prepare a quarterly report on the status of subordinate legislation not framed and share it with the Ministry of Law and Justice.  These reports are not available in the public domain.

Recommendations to address delays

Over the years, the Subordinate Legislation Committees in both Houses have observed multiple instances of non-adherence to the above timelines by various Ministries.  To address this, they have made the following key recommendations:

  • Statement on reasons for the delay: In 2011, Rajya Sabha Committee recommended that while laying Rules/Regulations before Parliament, the Ministry should also lay a statement explaining the reasons for the delay, if any.
  • Scrutiny of delays by the Cabinet Secretary:  In 2016, the Rajya Sabha Committee recommended that the Cabinet Secretary should continue the practice of calling the Secretaries of concerned Ministries/Departments, to explain the reasons for the delay in framing the subordinate legislation.  Each Ministry should send a quarterly status report to the Cabinet Secretariat.
  • Revisiting guidelines: In 2011, Lok Sabha Committee recommended that the 1986 guidelines should be revisited and all major recommendations of the Committee should be incorporated.  However, as per the Action Taken Report, the government observed that the ministries consider the extant guidelines adequate and these guidelines were re-iterated in 2012.

Are all Rules under an Act required to be framed?

Usually, the expressions used in an Act are “The Central Government may, by notification, make rules for carrying out the provisions of this Act.”, or “as may be prescribed”.  Hence, it may appear that the laws aim to enable rule-making instead of mandate rule-making.  However, certain provisions of an Act cannot be brought into force if the required details have not been prescribed under the Rules.  This makes the implementation of the Act consequent to the publication of respective Rules.  For example, the Criminal Procedure (Identification) Act, 2022 enables the police and certain other persons to collect identity-related information about certain persons.  It provides that the manner of collection of such information may be specified by the central government.  Unless the manner is prescribed, such collection cannot take place.

That said, some other rule-making powers may be enabling in nature and subject to discretion by the concerned Ministry.  In 2016, Rajya Sabha Committee on Subordinate Legislation examined the status of Rules and Regulations to be framed under the Energy Conservation Act, 2001.  It observed that the Ministry of Power had held that two Rules and three Regulations under this Act were not necessary.   The Ministry of Law and Justice had opined that those deemed not necessary were enabling provisions meant for unforeseen circumstances.  The Rajya Sabha Committee (2016) had recommended that where the Ministry does not feel the need for framing subordinate legislation, the Minister should table a statement in Parliament, stating reasons for such a conclusion.

Some key issues related to subordinate legislation

The Legislature delegates the power to specify details for the implementation of a law to the Executive through powers for framing subordinate legislation.  Hence, it is important to ensure these are well-scrutinised so that they are within the limits envisaged in the law.

  • Capacity of Committees on Subordinate Legislation:  Parliamentary Committees on Subordinate Legislation have the responsibility to examine Rules in detail.  In past, they have examined some key rules, regulations, and notifications regarding e-commerceliability of internet-based services, and demonetisation.  However, usually, they are able to examine only a fraction of subordinate legislation in detail.  For more details, please see the PRS discussion paper here.
  • Uniformity of standards:  Countries such as UKUSAAustralia, and Canada have overarching legislation for regulating the framing of subordinate legislation.  These laws provide for the manner of public consultation, timelines, drafting standards, and a common register.  India does not have any similar law.  In India, the detail whether public consultation for subordinate legislation is required or not, is specified in respective Acts.  The General Clauses Act, 1897 also governs certain aspects of the framing of subordinate legislation.  In addition, the Pre-Legislative Consultation Policy, 2014 guides the pre-legislative consultation on subordinate legislation.

See here for our recently published analysis of the Criminal Procedure (Identification) Rules, 2022, notified in September 2022.  Also, check out PRS analysis of: