How Can India’s Energy Sector Recover Sustainably from COVID-19?

The document examines the financial crisis facing India's electricity distribution companies (DISCOMs), which were already struggling with high costs and poor billing before the COVID-19 pandemic. The pandemic caused a catastrophic drop in power demand, further reducing revenues while fixed costs for coal and older renewable energy remained. While the central government provided a stimulus package of INR 90,000 crore and expanded borrowing limits, the document argues these measures do not address root causes. It recommends improving metering and billing, better targeting of subsidies, adjusting fixed-cost billing components, and renegotiating power purchase agreements to better allocate risk across the supply chain.

• India's electricity distribution companies (DISCOMs) faced severe financial instability prior to the pandemic, with outstanding dues to power generators increasing from approximately INR 80,900 crore (USD 10.8 billion) in late 2019 to INR 1,26,000 crore (USD 16.8 billion) by May 2020, representing a 56% increase.
• The financial distress of DISCOMs is driven by three primary factors: high power procurement costs due to poor demand forecasting and surplus capacity, inaccurate or delayed billing (particularly following the 2017 SAUBHAGYA program), and tariff structures that do not cover full costs, leading to a reliance on state subsidies estimated at INR 63,700 crore (~USD 8.5 billion) in 2019.
• COVID-19 lockdowns caused a significant drop in power demand—averaging 9% in March 2020 and rising to 23% in May—which severely reduced DISCOM revenues. This was compounded by 'must-run' status for renewables and fixed-cost payouts for coal power purchase agreements (PPAs), meaning DISCOMs could not reduce costs proportionally to the demand drop.
• The central government's intervention included an INR 90,000 crore (~USD 12.1 billion) stimulus package and expanded state borrowing limits, both contingent on reforms such as implementing Direct Benefit Transfer (DBT) for subsidies and installing smart meters. However, these are criticized for not addressing root problems and being difficult for financially stretched states to implement.
• To achieve long-term sustainability, the document suggests that DISCOMs should prioritize universal metering (especially for agricultural and rural consumers), depoliticize electricity pricing to avoid absorbing losses, and adjust billing to include a higher fixed-cost component to better align with the costs paid to generators.
• The document recommends reforming power procurement by using spot markets for additional demand instead of rigid PPAs, introducing force majeure clauses for renegotiation during crises, and potentially fast-tracking the retirement of older coal plants through one-time settlements.
• There is a call for better risk allocation across the supply chain so that DISCOMs do not bear all the risk. This could include asking generation company investors to reduce their return on equity (fixed at 15.5% from 2019 to 2024) or banks to lower interest rates on loans.

APA

Aggarwal,, C. B. V. (2020). How Can India’s Energy Sector Recover Sustainably from COVID-19? International Institute for Sustainable Development. https://www.iisd.org/articles/how-can-indias-energy-sector-recover-sustainably-covid-19

Chicago

Aggarwal,, Christopher Beaton,Anjali Viswamohanan,Prateek. How Can India’s Energy Sector Recover Sustainably from COVID-19? International Institute for Sustainable Development, 2020. https://www.iisd.org/articles/how-can-indias-energy-sector-recover-sustainably-covid-19.

Wikipedia

{{cite report |last1=Aggarwal, |first1=Christopher Beaton,Anjali Viswamohanan,Prateek |title=How Can India’s Energy Sector Recover Sustainably from COVID-19? |publisher=International Institute for Sustainable Development |date=24 July 2020 |url=https://www.iisd.org/articles/how-can-indias-energy-sector-recover-sustainably-covid-19 |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{aggarwal2020how, author = {Aggarwal,, Christopher Beaton,Anjali Viswamohanan,Prateek}, title = {{How Can India’s Energy Sector Recover Sustainably from COVID-19?}}, institution = {International Institute for Sustainable Development}, year = {2020}, month = jul, url = {https://www.iisd.org/articles/how-can-indias-energy-sector-recover-sustainably-covid-19}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }