Over the past few months, the Covid-19 pandemic has caused an unprecedented global economic and social crisis. The pandemic has significantly affected all aspects of life, including the energy sector.
The energy sector has already felt the impact of Covid-19. The outbreak has contributed to a dampened demand for oil, resulting in plummeting prices and declining production, especially in the wake of the Russia-OPEC price war. According to the IEA Oil Market Report – April 2020, global oil demand is expected to fall by a record 9.3 mb/d year-on-year in 2020.
Demand in May is estimated to be 29 mb/d lower than a year ago, down to a level last seen in 1995. Covid-19 has also accelerated the continued drop of gas prices.
A similar trend of falling demand and price reduction can be observed in the electricity sector. Europe has faced a record collapse in electricity prices. In many European countries, power prices have turned negative. This is evidenced by the data from Nord Pool (Europe’s leading power market) and HUPX (Hungarian Power Exchange) regarding prices in the day-ahead market. Such a situation is considered normal in some countries during weekends or holidays, but now negative figures are also fixed on weekdays.
Unsurprisingly, the strictness of confinement measures correlates with drops in consumption: 25% in Italy, 20% in France, 12% in the United Kingdom. Another concern is the impact of the reduced demand on utility companies’ cash flows and the spillover effect this has on the energy sector.
Many companies across different sectors globally have ceased or decreased capital expenditures where possible, and the energy sector is no exception. For example, Distribution System Operators (DSOs) are delaying most initiated projects, resulting in a substantial decrease in the procurement of goods and services. Non-critical investments have been suspended. The fulfillment of investment programs by Transmission System Operators (TSOs) and DSOs is also at risk.
Covid-19 is having an especially negative impact on the renewable sector. One of the main problems relates to the delivery of equipment to power plants. China, which is among the countries most heavily affected by the corona virus, is the main global producer of many clean energy technologies, such as solar panels, wind turbines and batteries. Since corona virus has delayed deliveries from China, renewable energy companies are not able to comply with deadlines for equipment installation. For instance, in India alone 3,000 MW of solar and wind energy projects face delays, due to the corona virus lockdown. The world’s leading producer of rechargeable batteries was unable to complete tests of new models of rechargeable batteries due to the pandemic, and this has led to a reduction in delivery volumes of rechargeable batteries for the European market.
Coupled with a drop in global oil prices, which is largely caused, this crisis is producing imbalances in the energy sector, affecting both investments and the transition to decarbonisation. The dip in carbon prices, also a result of lower energy demand, shows the adversarial impact that the corona virus crisis can have on the recently launched European Green Deal, according to EPG Romania.
Efforts are being made to ensure that the economic recovery measures adopted at EU and national levels are in line with the long-term climate efforts. In this regard, attention should be given to the Southeast European member states that are both more vulnerable to such economic shocks and face distinct challenges in the energy transition.
In Romania, a drop in energy prices threatens further investments in the sector, while potentially ill-conceived governmental interventions risk creating lasting and unforeseen imbalances. In transportation, the renewal rate of vehicles is discouraged by low oil prices, while an influx of second-hand vehicles from Western Europe will further disincentive the replacement of internal combustion engine cars. In the buildings sector, facing stricter and more costly energy performance standards, and largely dependent on shrinking public funds, the renovation rate of buildings could also be negatively affected.
To address this multifaceted crisis, an economic recovery plan should be designed to take into account both the more limited resources for countries in Southeast Europe and the need to safeguard long-term climate objectives. Emergency short-term solutions for combating the immediate social and economic risks of the corona virus crisis should be combined with a set of policy and regulatory revisions that can ensure a smooth and sustainable post-crisis recovery.
The corona virus (Covid-19) has created the biggest global crisis in generations, sending shock waves through health systems, economies, and societies around the world. Faced with an unprecedented situation, governments are focused on bringing the disease under control and reviving their economies and the energy sector.