Electricity plays a critical role in the fight against the COVID-19 pandemic. It is an essential service that powers hospital, homes, and businesses. In the long run, provision of reliable and affordable power will play a key role in the immense economic recovery that will be needed in the wake of the pandemic.
In the short run, the current economic downturn has both lowered electricity demand and reduced many people’s ability to pay their bills. This has disrupted cashflows in electricity systems across the globe. Transmission and distribution sectors have been particularly negatively impacted, due to challenges related to metering, billing, and collections. Many utilities are now struggling to continue providing quality service, while not being compensated.
To mitigate the effects of decreasing revenues on electricity service providers from reduced demand and lower cash collection, governments are working closely with industry to create policies and recommendations that will enable the continued operation of power utilities. In some emerging economies, international finance institutions (IFIs) have also begun offering much needed support in the form of cash assistance and debt relief.
Castalia is tracking how governments and utilities in seven of the countries we work in are collaborating in response to COVID-19. Table 1 below summarizes the responses:
Table 1. Utility responses to COVID-19
Across the board, governments and utilities have boosted efforts to increase flexibility in billing and collections. In the developed countries we analyzed, governments have either encouraged or mandated utilities to provide the option of installment plans or payment deferrals for customers who are struggling financially. In contrast, some governments in developing countries have taken a more radical approach of paying the electricity bills of the poorest customer groups. This protection of the most impoverished is laudable but could create additional fiscal strain on some of these governments.
Another almost universal trend we noticed was that distribution companies (discos) and retailers are suspending disconnections for customers who cannot afford to pay their electricity bills. The Australian Energy Regulator (AER) has explicitly barred retailers from disconnecting any residential or small business customers. A similar order was announced by the Tripura Electricity Regulatory Commission (TERC), but it is the only explicit regulatory mandate in India. However, this New Zealand is the only country we studied that still allows disconnections. However, the Electricity Authority (EA) has strongly encouraged retailers to only pursue this action as a last resort.
Governments and IFIs have also been stepping up financial and fiscal support. We observed that developed countries have implemented lighter fiscal intervention compared to developing countries. For example, Australia and New Zealand have slightly loosened restrictions on debt owed by electricity sector participants. Interest on debt owed is not accruing in Australia and retailers in New Zealand have an additional 60 days to repay debt obligations. Conversely, Brazil has introduced a US$400 million power sector liquidity fund and the Ghanaian Government approved a GHS$1 billion (~US$170 million) electricity sector relief package. For Madagascar, some fiscal relief has been provided by the IMF, through a US$166 million disbursement through the Rapid Credit Facility (RCF) and six months of debt service relief from the Catastrophe Containment Relief Fund (CCRF).
With the end of the pandemic not yet within sight, and a massive global economic recession looming, we believe that governments and IFIs will continue to play a critical role to ensure that utilities are able to deliver electricity while managing significant cashflow shortages.
We will continue to track developments in the countries we work in and share them on this blog.
Authors: Lisa Tessier, Will Mulhern, Gianmarco Servetti
Sources for Table 1