COVID-19

COVID-19 and the impacts on your Gas and Electricity prices

The Covid-19 lockdown and decrease in energy demand have given rise to increased costs to supporting renewable subsidies over the UK, both in terms of cost per megawatt-hour (£/MWh), and overall expected spending for 2020-21, according to research from energy analyst Cornwall Insight.

The ‘Third-Party Charges forecast’ report predicts a rise in the total cost of renewable subsidy schemes, above £10bn in 2020-21, as a result of the Covid-19 lockdown.

The £/MWh impact on suppliers is also expected to be approximately 5.4% higher and reach £40/MWh in total.

Cornwall Insight analyst Lee Drummee said: “With the cost of renewable subsidy schemes and other policy aspects now accounting for over 30% of the typical electricity bill, these rising costs will ultimately be recouped from consumer bills.”

“Covid-19 has cut energy demand and lowered wholesale energy prices; these two effects have resulted in an increase in per unit costs of energy policy subsidies at just the time many consumers are struggling with their bills.

“The impacts of these rising costs are expected to be higher in the first two quarters of the year (April – September 2020). It will lessen in the second half of the year as Cornwall Insight’s forecasts suggest market conditions will begin to return to some form of normality.

“Several measures have been put in place to buffer domestic suppliers and consumers from this sharp rise in third-party charges. However, the combination of all the costs together will mean the increase will nevertheless be felt.

As Great Britain (GB) is starting to move through the peak of the COVID-19 pandemic, there have been some indications that the energy market could be passing its trough.

Tim Dixon, Wholesale Team Lead at Cornwall Insight, looks into how GB gas & power prices may shape up over the summer months, considering whether the COVID-19 recovery could spark a lift for the markets not typically seen at this time of year.

National Balancing Point (NBP) Gas

“Gas consumption heading into the summer is considerably lower than the levels typically observed in April/May. The impact of lockdown measures and one of the warmest Aprils on record have contributed to low levels of gas demand on the National Transmission System (NTS).

 “Looking ahead to the summer, demand on the NTS – which is already 10% lower than typical levels for the time of the year – is currently forecast to fall even further, with demand potentially breaching the 122mcm consumption level seen in August last year.

“Gas storage in the UK is well-stocked at a five-year high for this time of year. With the continued arrival of LNG tankers to GB terminals, the gap between gas supply and demand in the country continues to widen.

“These factors point towards a continual decline in GB gas prices emerging from the spring, with the already low day-ahead contract likely to extend losses further into the summer.”

Power

“The GB power market is dominated by the gulf in demand left by the COVID-19 lockdown.
This has seen the average demand for the working week fall approximately 20% over April.

“Although the weather has a bigger influence on demand for gas, increasing levels of embedded solar generation connected at the distribution level reduce transmission system demand. The ramp-up in solar PV production, especially with a sunny April, has increased this trend.

“The impact of solar PV and daylight hours will continue to weigh on transmission demand over summer months, but the gradual ease of lockdown should be an offsetting factor.

“However, a recovery to “pre COVID-19” demand levels is highly unlikely. Experts are no longer predicting a swift return to commercial/industrial activity levels seen before lockdown, and this will take its toll on demand. As a result, a surge in GB gas and power demand and prices is likely to be seen in the summer.”

Useful Links:

https://world-nuclear-news.org/Articles/European-power-prices-impacted-by-COVID-19-pandemi

https://www.icis.com/explore/resources/news/2020/03/19/10482507/topic-page-coronavirus-impact-on-energy-markets

https://www.dyballassociates.co.uk/energy-price-forecast-2020-the-impacts-of-coronavirus

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