Planning for uncertainty: What will the power market look like after the pandemic?

Will the UK electricity landscape ever return to ‘normal’?

Since the first lockdown was introduced on 23 March 2020,  electricity demand in the UK has fallen by an enormous amount

Economic growth and energy demand have typically risen in tandem. Given that the economy shrank by an estimated 20.4 per cent in April, and only grew by 1.8 per cent in May, electricity demand is unlikely to have increased in any meaningful way since the easing of lockdown on June 1st.

Effectively, the UK is expected to have used only as much power as in the 1960s during lockdown. This led to downward pressure on wholesale electricity prices, which were already on a downward trend due to a number of other factors.

What has changed in the power market?

  • Almost no coal has been used since the pandemic began. There seems to be no prospect of coal-fired generation ‘bouncing back’, particularly given the UK’s coal phase-out deadline of 2025.
  • A historically large amount ofrenewable electricity has been generated in 2020 so far, thanks to ideal weather conditions for solar and wind generation. This seems likely to remain for the foreseeable future at least.
  • In part due to this increase in non-thermal generation, the effort required tobalance the grid has become much greater – and much more expensive. With changed supply and demand patterns, Third Party Costs seem likely to remain high.

When will the market start to ‘bounce back’?

Any bounce back will depend on a range of factors: how smooth the return from lockdown is, the possibility of local lockdowns, as seen in Leicester, and the possibility of a second, prolonged lockdown.

Despite the easing of lockdown, habits have not changed dramatically, and around half of the country is still working from home. This has contributed to a flatter morning peak period, which we expect to continue for the foreseeable future. Similarly, social distancing measures across the hospitality and leisure sectors may prevent the evening peak returning to previous levels, either.

Predictably, this dramatic and unprecedented slump in electricity demand has led to lower wholesale prices during the pandemic crisis. However, it is unlikely that these price reductions will be passed on due to increases in Third Party Costs (TPCs) incurred in balancing the grid throughout lockdown .

To ensure that you are getting the best Energy Contract during these unprecedented times, give us a call and we can help navigate you through these uncertain times.

 

Courtesy of Birchwood Energy – 18/08/2020

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