Covid-19 update: Power sector situation in lockdown countries

The spread of the coronavirus has impacted several industries and economies. The energy industry is one such, and the power sector has seen the visible impact of this during the last two months. Electricity demand curve has taken new shapes in the affected regions. In Europe, countries like Italy, Spain, France, Germany, and Belgium are manifesting lockdowns and strict measures to restrain the virus spread. Almost all major US utilities are geared-up with a critical response team to address the possible impact of Covid-19 in the US grid.

GlobalData summarises four Q1 and Q2 2020 trends for the global power sector, in the view of the current virus break-out.

1. Coal: The global thermal power prices shall fall in 2020. Coal-fired units are being used as a first option to run for base load operation, as the peaks and valleys of the demand curve are converging.
2. Gas: Gas generators to be worst-hit, especially the rental power companies and merchant power plants, who will experience severe blow until June 2020. As spot LNG prices are expected to go down, the overall revenue of the gas generators will diminish in Q2 of 2020 as they will need to pass on the benefit of the price decline to the consumers. With the severity of Covid-19’s spread in Europe, seagoing LNG vessels are now observing protocols to reduce risk of further virus spread.
3. Solar: More than 80% of the annual solar photovoltaic (PV) market demand is met by Chinese PV manufacturers. The ongoing pandemic has halted the production at several manufacturing units in China. This situation already has impacted supply chain, and had affected the underdevelopment projects in some nations. In addition to capacity slippage to 2021, the solar PV module prices shall increase by 10%-20%.
4. Wind: Execution and field management shall be a key issue for projects that are lined-up for commissioning in Q1 and Q2 of 2020. Projects in the Middle East and Central Europe to be hit worst as contract workers return to home country due to panic situation at field sites.

Italy

Thermal power had the largest share of the cumulative installed capacity in Italy, accounting for 49.6% of the total installed capacity, including gas with 40.5%, coal for 6.8%, and oil for 2.1%. It was followed by hydropower and non-hydro renewable. Of the thermal sources, gas receives the maximum government support. Non-hydro renewable power, including bio-power, onshore, offshore and small wind, photovoltaic (PV) and geothermal accounted for 31% and hydropower for the remaining 19.8%.

The gas demand in Italy is seeing a decreasing trend. If the current lock-down situation persists, the domestic gas prices shall fall further, and the same shall have a proportional impact in Italy’s electricity price and demand.

Italy’s monthly peak demand observed during December 2019 to March 2020 (as of 20 March 2020) was found the lowest compared to previous two years’ records.

Australia

Australia is the world’s second largest exporter of thermal coal. Japan and China are two major export destinations for Australian thermal coal. Due to Lunar year celebrations and the following outbreak of the coronavirus in mainland China, China’s demand for thermal coal was reduced. The bulk of the coal, which already delivered in Chinese ports, is awaiting clearance. This sudden decline in demand from China has influenced the prices of Australian thermal coal both in overseas and domestic markets. Lower fuel cost leads to lower delivered cost of electricity in domestic market; and this shall further cause a decline in the annual revenue realisations by local power generating companies in 2020. Since electricity markets are regulated, the utilities will need to pass on the benefit of the lower fuel cost to the consumers.

Spot thermal coal prices (FOB price at Newcastle Port, Australia) were initially forecasted to be around $70 per tonne in 2020. However, due to the slowdown in global demand, the prices reached $67.5 per tonne in February 2020 and $64.6 per tonne in March 2020. The peak high during April 2019 to March 2029 was $90.4 per tonne, recorded on 4 April 2019.

Canada

It is expected that there would not be any significant impact on the Canadian electricity sector due to Covid-19, except that some of the capacity augmentation or renovation works might get delayed. In total, Canada imports goods worth $48.5bn from China annually. If any material required for the construction or renovation gets stuck in the supply chain, the respective project would get delayed. Canadian Electricity Association has announced that the electricity sector currently does not face any technical risk.

In order to facilitate the population that would work from home, Ontario electricity leaders are discussing options such as the suspension of time-of-use pricing. Also, they are considering introducing tiered-pricing that can control the peak demand spikes in evening hours. The idea behind the tiered-pricing is to discourage unwanted usage of power during peak times, and instead try to shift that load to non-peaking times. However, an official announcement is yet to be made.

United Kingdom

The power demand in the UK is estimated at 299 GWh for 2019. Industry leaders believe that the total demand across the country would fall in coming days due to the Covid-19 outbreak. Fall in total demand will mainly be factored by the considerable reduction in industrial and commercial demand, which would likely be higher than the increase in domestic demand as people stay at home.

Japan

Japan’s dependency on imported fossil fuels is over 97% for crude oil, LNG and coal. Total electricity consumption in Japan stood at 945 TWh in 2019. As per initial plans, Japan is expected to start operations of three nuclear reactors in 2020 after implementation of the safety enhancements. As this safety enhancement programme has not been completed, Japan is expected to use more LNG in Q2 2020 in place of nuclear electric power, which in turn would increase the wholesale electricity prices. Due to the coronavirus pandemic, the country is experiencing a slowdown in industrial activity, which in turn has impacted the industrial electricity consumption. Industry leaders have not made any official declaration on the size of impact in power sector.