Friday 24 July 2020

Early effects of COVID-19 on the business electricity market – insights from Bryt Energy

Covid-19 has affected individuals, businesses, and industries in an unprecedented way across the world. Now many governments, including our own, expect Covid-19 to be with us for many months, if not years, ahead. So what impact is the virus having on the business electricity market and what do we need to look out for?

From the signals by the government on its energy policy, to the impact we have already seen in the market, here is a quick run-through of the effects we’ve seen so far and the implications for you and your business. 

EFFECTS ON POLICY

Industry sources estimate that electricity demand has fallen by between 15-19% since the lockdown compared to a similar period last year when there were no restrictions¹. A drop in demand on this scale was unprecedented and could have long term effects for all. Not the least for the government, which has been forced to delay the flagship UN Climate Summit, COP26, scheduled for Glasgow in November. It must now work even harder in pursuit of its net zero emissions programme to regain the momentum and achieve results in time for when the Summit reconvenes next year.

The push to reduce emissions is unlikely to be affected in the long-term, beyond the inevitable delay caused by the virus. We are told we can soon expect the government’s keynote Energy White Paper, sketching out its strategy for the 2020s². A new Transport Decarbonisation Plan will also appear later in the year and progress is planned for Carbon Capture & Storage and decarbonising heat; it seems that achieving net zero by 2050 is still a key priority for the government.

We may also be expected to follow the EU’s lead in putting clean energy investments and sustainability at the heart of the UK’s industrial and business recovery from the virus³. Consequently, you would be well advised to ensure your organisation’s net zero aspirations remain in focus as recovery plans get underway.

EFFECTS ON THE MARKET

Whilst the government is to provide financial relief for domestic customers that are most in need during Covid-19, the same cannot be said for business users⁴. Therefore, we have summarised the two main changes to the electricity market triggered by Covid-19 so far, to help your business navigate through these changing times:

1. Wholesale energy prices have taken a dive. Prices were already on a downward trend at the end of 2019, with price competition in the oil market feeding through to gas and electricity. The recent reductions in national demand have compounded this, forcing market participants into selling back volumes their customers no longer require and weighing the price down further. The positive news is that renewable energy generation now accounts for a larger share of the reduced market, leading to a less carbon-intensive grid mix and more volatile short-term prices (including more frequent negative prices). The challenges this poses in keeping the system in balance⁵ means that any flexibility you have, either in the ability to adjust your demand to pricing signals or provide demand response services to the National Grid, should be more valuable.
2. In contrast, the non-energy elements of your bill can be expected to rise. They cover delivery and balancing costs, as well as several government schemes encouraging low carbon generation. Nowadays, non-energy charges are likely to make up the greater proportion of your bill and your supplier is obliged to settle these and will include them in your rates or pass them through to you. If energy demand does not meet expectation, non-energy charges will need to go up so that industry costs and revenues can still be recovered across a lower overall level of consumption. This principle has been embedded in the workings of the power market since its inception and is something you need to understand if you are expecting changes in your delivered prices to match those in the wholesale market.

IMPLICATIONS FOR BUSINESSES

Finally, it is worth noting that business closures, cut-backs, and cash strains from Covid-19 are affecting businesses from all industries, as well as their energy contracts. You will need to review your energy demand projections, which may well differ from those in your contract. Seeking new contracts or hedging volumes further ahead may also prove difficult, as demand appears more unpredictable over the coming months. Above all, working with your supplier as a team to address what lies ahead is more important today than ever before.

We will be keeping you posted on future developments in the electricity market through our monthly newsletter, Bryt Insight.

Here at Bryt Energy, we can support your business on its sustainability journey, providing you with zero carbon, 100% renewable electricity, sourced solely from wind, hydro and solar power. If you have any questions on how we can help you towards a low carbon, sustainable future, please speak to our friendly team at solutions@brytenergy.co.uk or on 0121 726 7575. Let’s make a difference, together.

Sources 

1. https://www.elexon.co.uk/article/coronavirus-temporary-derogations-to-improve-settlement-accuracy/
2. https://www.current-news.co.uk/news/beis-aiming-to-publish-energy-white-paper-in-spring-despite-covid-19
3. https://www.europarl.europa.eu/news/en/press-room/20200419IPR77407/eu-covid-19-recovery-plan-must-be-green-and-ambitious-say-meps
4. https://www.gov.uk/government/news/government-agrees-measures-with-energy-industry-to-support-vulnerable-people-through-covid-19

5. https://www.current-news.co.uk/news/summer-outlook-covid-19-could-cause-20-demand-drop-resulting-in-different-set-of-challenges