Covid impact on demand puts pressure on electricity prices


What will happen to electricity prices in the aftermath of the coronavirus pandemic? And what can users do to prepare for the impacts? These questions attracted much attention during the “Procurement in a post-Covid world” webinar held by The Energyst.

In a volatile energy market, a case can be made for flexible contracts as they provide more control and better transparency, argued Chris Hurcombe of energy consultancy Catalyst Commercial.

Because they allow for volume reforecasting, and given that organisations can now buy as little as 2GWh through flexible contracts, it is important for companies of all sizes to consider this option, he said.

The lower demand we are experiencing through the Covid crisis has had many significant impacts on electricity prices. For a start, non-commodity costs — currently representing about 65% of electricity prices — are expected to rise, according to Georgina Penfold of energy consultancy Inspired Energy.

She expects the targeted charging review, which is due in April 2022, to result in significant rises for both distribution network use of system (DUoS) and transmission network use of system (TNUos) charges.

The picture for balance of system charges is more complex, as growing volumes of renewables are brought online, but it is likely that the current cap of £55/MWh will be reviewed in April 2022.

Post-Covid, there is likely to be less need for the capacity market, which is designed to support the network when demand is high. Because the operational levy remains the same, regardless of demand, Penfold expects costs to rise for now but settle in the longer term.

Falling demand is also likely to lead to some suppliers leaving the market, which could eventually result in higher prices for customers.

Penfold sees less of an immediate impact coming from the support mechanisms for renewable energy — contracts for difference, feed-in tariff and renewables obligation. She expects the feed-in tariff to rise, but its impact is limited because it is not open to new entrants. As for contracts for difference, their cost is reconciled 2.5 years after the event, so there is no immediate impact. And the renewables obligation, being set in advance, is not expected to change much.

Climate levies are still big unknowns. Consultation on a new green gas levy, due to be introduced in the autumn of 2021, should start about now — although it may get delayed. And Penfold expects the new UK carbon tax that will replace the EU ETS to impact fossil fuel generation.

Penfold has high hopes of the industrial energy transformation fund. “There is a lot of money out there to support the industrial sector,” she says. The combined effect of a post-Brexit industrial strategy and the continued need to lower carbon emissions could lead to some exciting developments in that respect, she says.

Heat is a huge challenge and electricity networks are in dire need of a significant upgrade. These are matters the Energy White Paper will have to address. “But Covid has changed the landscape completely,” Penfold says. “I expect a lot of focus on resilient networks that will last into the future.”


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