All sectors are set to feel the strain from the recession and energy is no exception. But what impact has coronavirus had on energy companies? And now that the UK is facing the deepest financial crisis on record, how can the Government keep policy for the industry on track while maintaining a steady pace of transformation?
Energy companies hit by coronavirus and recession
Between March and August, the power industry lost out on £1.1 billion due to reduced electricity demand and wholesale prices.
Price caps and unstable energy prices meant the retail supply sector was already on shaky ground, and difficulties in reacting to changing consumption patterns haven’t helped. In fact, lockdown saw demand in some areas drop by up to one fifth.
The closure of shops, schools, offices and factories has led to suppliers serving industrial and commercial customers seeing a considerable downturn in consumption.
As well as this, domestic suppliers could be affected by the long-term financial impacts of the recession, with rising unemployment meaning consumers may not be able to pay.
How suppliers are handling the cost
Although the fall in wholesale electricity prices during lockdown benefitted some suppliers, others have needed to sell back excess volumes of electricity to the market at lower prices.
Many energy suppliers will inevitably take a sizeable financial hit, further reducing business margins, as it will be difficult in many cases to pass these costs on to customers. This could lead to increased numbers of insolvencies and M&A activity.
Government support: Keeping things green
Even amidst an economic crisis, green energy remains a priority. With the net-zero by 2050 target driving rapid transformation in the sector, the delays to policy announcements and the Energy White Paper shouldn’t stop the UK from pursuing this goal.
The Government must continue to support the green economy, introducing and increasing subsidies for energy efficiency and renewable energy wherever needed, even in this period of economic downturn.
Electricity distribution networks will also require substantial investment to accommodate increasing levels of electric vehicle charging. A recession cannot halt the progress that has been made towards a greener future.
The UK recession will undoubtedly create a host of complexities for the energy sector to overcome, and potentially reduce much-needed investment. However, one of the few benefits of the extended lockdown period has been the beneficial impact on carbon emissions, and if the Government is proactive and maintains the pace of change, we can build on that and exit the recession with net-zero within our grasp.
For more information, contact our energy team.
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