COVID19 v WINTER v THE ENERGY SECTOR

As a COVID ‘second wave’ appears to be growing globally, the UK’s energy sector is confident about coping with the perfect storm of pandemic and winter demand, while looking for longer-term benefits.

As Europe heads into the winter months, the COVID pandemic shows little sign of abating, with reports of a rising ‘second wave’ of Coronavirus and many countries including those in the UK now implementing further lockdowns.

Earlier this year, Fundamentals reported that the negative aspects of the pandemic also had some positives in terms of driving social change in general, and the energy sector in particular. This positivity in troubled times has continued with a number of reports and analysts stating that the energy sector is well prepared for the short-term and could also benefit in the longer-term.

From a purely operational perspective, the UK’s National Grid ESO is predicting the winter months will see transmission system demand peak at 44.7GW, lower than last winter’s actual demand of 46.8GW.  According to the ESO’s figures, electricity demand during the peak of the first wave of the pandemic fell by as much as 18%.  The ESO’s winter forecast is a reduction of around 3% and it is confident there will be sufficient operational surplus throughout the period. 

The ESO does add, however, that given the UK’s forward prices being higher than France, Belgium and the Netherlands, there is likely to be greater import of required energy than export over interconnectors, with import levels dependent on Average Cold Spell (ACS) demand.  

From a global perspective, Mitsubishi Heavy Industries’ VP of Energy Systems, Yasushi Fukuizumi – writing for the World Economic Forum – stated global energy demand is likely to remain low until the pandemic is “under control”. He claims there is only a short window for the energy sector to gain long-term benefits and recommends accelerating investment in three main areas:

  • Decarbonisation – capitalising on the fall in energy consumption and demand, along with increasing electrification and renewables, with a particular focus on developing large-scale storage and hydrogen-based technologies
  • Decentralisation – focusing on the distributed energy network with “demand response used to manage distribution and grid stability”
  • Digitalisation – using AI, machine learning, IoT and blockchain technologies to manage and monitor energy sources, systems and distribution.

These themes are echoed at more local level by James Crouch, Engineering Director at consultancy Burns & McDonnell. He stresses the need for Ofgem to maximise what he describes as “the unique opportunity” created by the pandemic to ensure a flexible and incentivised framework for distribution networks to transition to net zero.

He states: “Although most utilities will face an overall reduction in profit this year, interest rates have been reduced significantly. Some utilities will therefore find it prudent to borrow more and invest in renewables and smart grid systems to help meet the 2050 net zero target.”  He goes on to stress that the UK Government and Ofgem must provide a “flexible legislative and regulatory framework” to counteract market volatility and ensure investment in a safe and reliable energy infrastructure.