The Coronavirus pandemic has caused a radical slowing of economic activity across India, as industries scale-back production, employees work from home, and communities enter lockdown. As a result, we have seen significant impacts on the Indian energy sector, both short-term implications as well as some of the possible longer-term ones that are yet to materialize.
The first case of Coronavirus was reported in China towards the end of November 2019. Soon after, the Chinese Government locked down the most affected areas, as a domino effect of lockdown measures was felt in other countries. India entered lockdown on March 25, 2020, which has now been extended till May 17, 2020. Most estimates suggest that the pandemic will last until beyond the summer of 2020, resulting in an immediate impact on the economy and energy system lasting several months.
Over the course of the lockdown, we have seen significant impacts on the energy system and the energy sector more broadly. In the months to come, we are likely to see reductions in all major fuel use, as a result of the restrictions. An overview of fuel use by sector illustrates how consumption is likely to fall across the economy, apart from the residential sector. As individuals spend a greater share of their time at home, domestic electricity and gas use is likely to increase, as a result of lighting, cooking, and appliances.
Most obviously, travel restrictions have meant that there has been a significant reduction in the use of public and private transport. As a result, fuel demand for transport has dropped significantly. Compared to March 2019, the total consumption of petroleum products has dropped by nearly 20 per cent for March 2020. Within these products, we can see that demand for aviation turbine fuel for aeroplanes has dropped by over 30 per cent and the range of fuels used for road transport have all fallen between 20 per cent and 30 per cent (Figure 1). Were we to have data just showing the period since lockdown, we can expect the difference to be much greater.
Within the industry, we are also likely to see significant reductions in output, as facilities close and demand for products reduces. Taking the cement sector as an example, with the construction industry coming to a halt, demand for cement is likely to contract sharply in the coming months. CRISIL Research estimates that this could see a demand reduction of 10–25 per cent over the course of this year, depending on the length of the lockdown and the severity of the outbreak. This will cause significant reductions in the amount of coal, and other raw materials is demanded. In terms of electricity demand, whilst the continuous occupation of homes by its occupants has had a large impact on residential consumption, this has not been large enough to offset the opposing reductions from the rest of the economy. There has also been a significant drop-off in industrial and commercial electricity consumption, with employees working from home or restricted from entering their usual places of work. Since the start of lockdown, total electricity demand is around 25 per cent lower than the same period last year.
In terms of electricity generation, the drop in demand has impacted coal generation the most. As renewables enjoy 'must-run' status on the Indian electricity grid, a result of their zero marginal cost of generation, they have continued to generate as normal, forcing coal generation to drop further. If we compare the three weeks preceding the lockdown, with the data since March 25, 2020, there has been approximately a 25 per cent drop in coal generation. This has seen coal's share of generation fall from around 73 per cent to 66 per cent, with renewables and hydro both rising from 9 per cent to 11 per cent. Figure 2 shows daily electricity generation by source in India, from March 6 to April 5, 2020.
This has resulted in a slight 'greening' of our electricity supply, with CO2 emissions falling by just over 25 per cent during this period on a per-unit basis. Whilst this won't remain the case in the months to come, once the lockdown ends and electricity demand increases, it shows the impact that energy efficiency and demand reduction measures can have on emissions in the context of the Indian generation mix.
Whilst it is difficult to know the longer-term impacts of the coronavirus pandemic on the Indian energy system, a few impacts look likely. Most importantly, it is likely that there will be a long-lasting economic impact, instigated by the coronavirus, which may result in a recession. In the case of an economic recession, demand for key fuels will remain lower than they would have been otherwise, as economic activity is limited. In relation to an economic recession, we may also see negative effects on the availability of finance to supply capital-intensive energy projects. Renewables, for example, rely on significant levels of capital, paying back over a number of years. If the government is to meet its ambitious target of 450 GW of renewables, then measures may have to be taken to provide sufficient capital.
An impact that we are already seeing as a result of the restrictions between countries, is the limits placed on the trade of certain goods. Up to 3 GW of solar projects have been delayed as a result of trade restrictions on goods coming out of China. With international travel currently limited and potential slowing of economies, there may be negative impacts on supply chains that are important for the energy industry, again impacting the rate at which clean energy projects can be deployed. Nonetheless, some of the changes we see today could result in positive impacts for the energy system and a transition to a greener way of living. Companies and their employees are familiarizing themselves with remote working arrangements, which if retained to some extent, would reduce the amount of travel and the energy used in commercial buildings. Moreover, metro areas are witnessing the benefits of reduced fossil fuel combustion on the local air quality, which have provided communities with a glimpse of the future, if they are to pursue cleaner forms of transport.
The coronavirus outbreak and resulting lockdown undoubtedly represents a significant shock to India's energy system and an even greater shock to our normal way of lives. Nevertheless, during this time, there are important lessons that we can learn, which have the potential to help us as we plan for a greener way of living.
Impact of the 'Nine-Minute Lights-Out' Event
On April 3, the Prime Minister of India, Shri Narendra Modi, requested that the nation switch off all lights for 9 minutes to show support for essential workers on the following Sunday (April 5, 2020). During this period on April 5, the electricity grid registered a drop in demand of 32 GW, or nearly 30 per cent of demand at the time. Officials were only expecting a drop of 12–14 GW given the estimated lighting demand in the country. With the final drop more than twice this estimate, it is probable that households also switched off many appliances. As a result, the National Load Despatch Centre had to respond quickly to the rapid change in demand, shutting down power supply where possible. During the switch-off period of 21:00-21:09, hydroelectric sources accounted for most of the drop in generation, with thermal generation (largely coal), also providing some flexibility. This was a particularly extraordinary case of a change in demand, but it highlights the technical ability of the electricity grid to manage large swings. Whilst the measures taken are a result of significant efforts from the grid operator to manage the event smoothly, it shows that the Indian electricity grid can integrate a large amount of variability. Going forward, as India increases renewable deployment, a greater share of its electricity supply will come from variable sources, which can change at short notice. Learning from events such as these will be important as India pursues the most cost-effective path to further decarbonization of the power sector.
As a result of many of these shorter-term impacts, one of the most widely cited positives, is the resulting effect the reduction in fuel use is having on air pollution. The Central Pollution Control Board (CPCB) recorded data for Delhi on the day of the 'Janta Curfew' (March 22), comparing it with the days prior. The reduction in the number of on-road vehicles, as well as the reduction in industrial activity, contributed to a 51 per cent reduction in nitrous oxide levels on this day. Whilst there are other meteorological factors that also played a small role, this analysis gives an idea of the air quality benefits of reducing fuel combustion in metro areas, something which may be achievable in future with a shift to cleaner forms of mobility (such as electric vehicles, cycling, and walking).
(The article is the Cover Story in the latest issue of TerraGreen).