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How COVID-19 is Disrupting the Energy Sector

Posted By: Siraj Taj, Principal ST Power Services

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The economic repercussions of the COVID-19 pandemic will most likely cause widespread disruptions in the energy sector: tightening demand, disrupting supply chains, and reversing previous growth forecasts. We must reassess global growth projections issued before the pandemic because the supply and demand assumptions are no longer valid considering the global recession.

The economic slowdown will likely affect the broader clean energy transition, including renewables, energy storage, and electric vehicles, according to analysts at BloombergNEF. Investors may have a tough time raising equity due to the collapse in stock markets, and a general lack of business and consumer confidence could affect financing, installations, and power purchase agreements, according to the report.

What is unique about the energy industry is that it must remain fully operational to produce reliable energy and to maintain the stability of the bulk power system.

What energy source has the unique ability to maintain the reliable operation of our electric power system? Conventional power systems fueled by natural gas, coal, and nuclear.

The Edison Electric Institute (EEI) informed its members — investor-owned U.S. power companies — to prepare contingency plans for their operations to keep employees as safe as possible, while maintaining the reliability of the nation’s power supply. The EEI estimates that its member companies may see as much as 40% of their employees become sick, quarantined, or staying home to care for sick family members. This will force power companies to be prepared to operate with a significantly smaller workforce, a disrupted supply chain, and limited access to parts and services for a foreseeable future.

The COVID-19 pandemic has shone a high intensity light on the fact that the global energy industry is lacking a robust contingency plan to respond to public health crises. Every institution is scrambling to craft a contingency plan to keep their employees safe and reliably operate the electric power system.

The U.S. Department of Energy (DOE), the North American Electric Reliability Corp (NERC), the Federal Energy Regulatory Commission (FERC), Independent Systems Operators (ISOs), Regional Transmission Organization (RTOs), and groups responsible for the U.S. power grid — including power plants and transmission system control rooms — are all taking necessary precautions to implement contingency plans. These include travel restrictions, allowing staff to work remotely, and to maintain reliable operation of the electrical system.

The U.S. Department of Homeland Security (DHS) considers the electric utility as one of the critical infrastructures, including power plants, dams, and nuclear reactors, along with transmission systems. Utilities are studying the supply-and-demand balancing model to determine the impact of reduced demand for power from commercial and industrial (C&I) sectors and potential rise in the residential sector, with schools and businesses closed and people ordered to work from home. Declining electricity demand can be a valuable leading indicator to economic policy-makers that our economy is heading toward a turbulent time.

Some utilities along the U.S. West Coast have begun reporting drops in demand for power. Snohomish County Public Utility District outside Seattle, one of the areas hit hardest by coronavirus thus far, reported a 3% drop in electricity demand.

Conventional Power Systems

Thermal power generating companies have been under growing pressure to demonstrate flexibility, reliability, and social responsibility to remain competitive and relevant in the evolving energy market. The effects of COVID-19 pandemic have now significantly increased the pressure on thermal power plants because it is uncertain how long it will take for renewable energy sources to bounce back from the broader effects of economic slowdown.

Solar Sector

The pandemic presents challenges to solar companies as it disrupts supply chains for components, including panels and inverters. Simultaneously, it creates a labor shortage, which could prevent them from meeting project delivery deadlines and could even affect eligibility for tax or state incentives. Homeowners are likely to put investments in rooftop solar on hold due to economic uncertainty. The U.S. currently has about 10 GW of utility-scale projects under construction, including several community solar projects in states such as Florida, which also installed the second-most rooftop solar panels in the country last year after California.

Energy Storage

The situation is rather severe for energy storage because COVID-19 could affect battery demand more than supply according to the BNEF report, and demand for batteries across the globe could be tens of GWh lower than expected for 2020. It raises a question about the ability of a new industry to bounce back from measurable disruption, while it is starting to emerge as a commercially viable solution for renewable energy sources. The situation may become severe unless the manufacturing levels can quickly ramp back up. The storage sector is particularly vulnerable because it’s an emerging industry where its supply chains, inter-company relationships, and supply agreements are not as fully formed as other industries.

We’re Here to Help.

If you’re seeking a partner to proactively manage the challenges posed by the COVID-19 global pandemic to your thermal plant, we’re here to help. Reach out to Siraj Taj today, and in the meantime, access our entire library of subject matter expertise for free.

 

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