COVID-19 and its initial impact on the energy sector
As we continue to face an unprecedented global health crisis, I’ve explored the initial impact the COVID-19 pandemic has had on the UK energy sector in this blog (published in full on the SmartestEnergy website).
With the UK on lockdown, many businesses closing and the majority of Britain’s workforce now working from home, COVID-19 is causing major economic disruption.
Social distancing measures have forced some of the UKs biggest energy users, such as offices and industrial sites to shut and even though domestic consumption has risen, with over 16.8 million* people working from home this week, overall energy demand has dropped off (*Source: USwitch).
In the last week we’ve seen power prices fall in response to this lower demand, with the seasonal power price for Summer 20 falling the most significantly from ￡32/MWh last Tuesday (17th March) to ￡29.65/MWh on Tuesday this week (24th March).
Earlier this month, we reported in our Power Market Review blog a bearish view on global demand for Oil. The price has dropped by nearly 50% since the end of February, from $55.45/Bbl to $27.50/Bbl. It’s important to note here the combined impacts of demand destruction caused by large industrial and manufacturing facilities ceasing operations during the COVID-19 pandemic, and ongoing OPEC pricing issues as Saudi Arabia and Russia continue to remain at loggerheads.
Renewables step up
It was covered in our Informer newsletter earlier this week that the growth in renewable generation in the UK gives us more resilience to tackle the challenges of COVID-19.
Whilst the supply chain currently remains strong, as this pandemic continues, we are likely to see resource strain on operation and maintenance contractors. We expect naturally fuelled (wind, solar and hydro) plants to be more resilient than fuelled plant, given the lower risk to technical outages vs fuelled plant. Also, with renewable sites being dispersed across the country, we expect single point failures to have a lesser impact overall vs large thermal power generation.
At this stage it’s unclear to see how COVID-19 will affect the development of new renewable projects but we are likely to see delays in the deployment of new wind and solar projects.