Covid-19 Second Wave: Electricity Demand Shows Early Signs Of Faltering

Daily demand for electricity, considered to be among the most significant ultra-high frequency indicators of economic activity, held steady for the first two weeks of the month even as the numbers of Covid cases soared and local lockdowns were announced. However, electricity demand has shown signs of buckling in the second half of April.

On a week-on-week basis, the demand for electricity met during evening peak hours contracted 3.4% in the week ended April 18, and by 1.8% in the week ended April 25, according to data by the Power System Operation Corporation Ltd. Despite the volatility in demand for electricity, these were the sharpest rates of contraction since the start of the calendar year.

On a day-to-day basis as well, demand for electricity trended below 1.7 lakh MW for the country on an aggregate for six straight days for the first time in two months.

To be sure, the daily demand for electricity in April is estimated to rise month-on-month, led by demand in the first half of the month.

Daily electricity generation has seen some downside, perhaps reflecting the compounding impact of complete lockdowns in Maharashtra and Delhi, said Yuvika Singhal, economist at QuantEco Research. Looking ahead, with the Covid caseload continuing to rise in prominent industrial states such as Karnataka, Tamil Nadu, Gujarat and with Karnataka announcing a broad lockdown now, the impact of rising industrial slack on electricity consumption and generation can get exacerbated, she said.

Diverting liquid oxygen towards medical use may also have a temporary bearing on the production of select industries such as steel, auto and other consumer durables, Singhal added.

The economic impact of the second wave continues to unfold slowly amidst tightening curbs in some states juxtaposed with continuing economic activity in others. QuantEco’s Daily Activity and Recovery Index, which includes electricity generation as one of the high-frequency lead indicators, had already corrected by 8.5% week-on-week in the week up to April 18.

Rahul Bajoria, chief economist at Barclays, also said there is a clear impact on electricity amid a decline in economic activity even though it has not “fallen off the cliff”. However, coal demand and inventory, along with freight data continues to hold up, he said.

The share of electricity consumption by industries in India remains lower in comparison to other economies such as China, explained Bajoria. With high residential consumption of electricity in India, as seen by the demand even at the time of a complete lockdown last year, the impact of the second wave on industrial activity is hard to determine right now, he said.

Railway freight movement of major inputs, such as coal, iron, and steel, has remained relatively steady, according to an April 26 research note by Crisil. This indicates that on an overall level, the impact of the second Covid-19 wave on industrial activities thus far remains small, it added.