Disruption to the energy sector as a result of coronavirus (Part 2)

Disruption to the energy sector as a result of coronavirus (Part 2)

In our previous article we considered the impact that the coronavirus pandemic is likely to have on the energy industry, which is expected to result in price volatility and in particular electricity prices and the effect on Renewable Generators. Our next article explores the potential outcomes that the energy sector may face in the future.

Baringa Partners, a management consultancy, has developed scenarios that explore the course of the virus, the effectiveness of interventions by Governments, and the potential implications for economies and the power sector more specifically, outlined below:

• Scenario 1: Transitory shock: a sharp but relatively brief contraction in the economy followed by gradual recovery from Q4 2020 as the spread of the virus is contained and confidence progressively returns. As a result, the medium-to-long term economic are relatively limited;
• Scenario 2: Structural shock: the economic impact is sharper and long-lasting and the financial system suffers, similar to the global financial crisis of 2008-2009, resulting in a structural change in the growth outlook over the medium term, with recovery beginning in Q3 2021;
• Scenario 3: Structural shock combined with policy shift on environmental objectives: energy policy may evolve to place affordability for consumers at the top of the agenda with lower auction volumes for renewable energy and lower demand from corporates and suppliers to enter into long-term renewable PPAs and the postponement of the current target dates for closing coal-fired power generation capacity.

There is little doubt that worse is to come. Almost no aspect of the economy has been unaffected and a hasty race towards restarting the economy could cause more damage. Energy price volatility presents a challenge to existing and renewing contracts / ROCS and Power Purchase agreements as wholesale prices fall and uncertainty remains, which is likely to have a widespread effect on the energy sector and pricing over the coming months and possibly years.

Farm Energy NI are well informed of the developing situation, guided by advice from the appropriate authorities and can answer any of your questions or concerns. You can contact us at: info@farmenergyni.co.uk or 028 7930 0606