Keeping the lights on – the impact of COVID-19 on the E&U sector

COVID-19 RESOURCE HUB  |  Financier Worldwide

ENERGY & UTILITIES SECTOR

Energy & utilities (E&U) is one of the many sectors severely affected by the outbreak of coronavirus (COVID-19), with the pandemic having a major impact on global energy markets and energy resilience.

In its ‘Global Energy Review 2020: the impacts of the COVID-19 crisis on global energy demand and CO2 emissions’, the International Energy Agency (IAE) states that the impact of the pandemic on the sector is such that transport, trade and economic activity across the globe has slowed dramatically.

“COVID-19 has created the biggest global crisis in generations, sending shock waves through health systems, economies and societies around the world,” states the IAE. “Faced with an unprecedented situation, governments are focused on bringing the disease under control and reviving their economies.

“Our analysis shows that countries in full lockdown are experiencing an average 25 percent decline in energy demand per week and countries in partial lockdown an average 18 percent decline.”

Furthermore, although the implications of the pandemic for energy systems and clean energy transitions are still evolving, the IAE has identified three key areas of focus. First, energy security remains a cornerstone of economies, especially during turbulent times. Second, electricity security and resilient energy systems are more indispensable than ever for modern societies. And third, clean energy transitions must be at the centre of economic recovery and stimulus plans.

Among the IEA report’s key findings: (i) global energy demand declined by 3.8 percent in the first quarter of 2020, as confinement measures were enforced in Europe, North America and elsewhere; (ii) global coal demand was hit the hardest, falling by almost 8 percent compared with the first quarter of 2019; (iii) oil demand was also hit strongly, down nearly 5 percent in the first quarter, mostly by curtailment in mobility and aviation, which account for nearly 60 percent of global oil demand; (iv) the impact of COVID-19 on gas demand was more moderate, at around 2 percent, as gas-based economies were not strongly affected in the first quarter of 2020; (v) renewables were the only source that posted a growth in demand, driven by larger installed capacity and priority dispatch; and (vi) electricity demand has been significantly reduced as a result of lockdown measures, with electricity demand depressed by 20 percent or more during periods of full lockdown in several countries, as upticks for residential demand are far outweighed by reductions in commercial and industrial operations.

In its ‘COVID-19: How Energy & Utility Companies Can Soften the Blow’ report, WNS (Holdings) Ltd asserts that energy and utility (E&U) companies – which usually have concrete contingency plans in place to offset the impact of natural disasters – are facing altogether different challenges with regard to COVID-19. These include operating with skeletal staffing, the impact of the pandemic on their bottom line, potential credit weaknesses and damage to the customer experience.

“Though it is too early to gauge the full extent of the impact, early indications prove that the demand is falling,” says Dan Sullivan, executive vice president at WNS. “In the US, grid operators have already started witnessing a reduction in usage. Less exposure to the commercial and industrial segment of customers could translate into reduced revenues for companies. The biggest concern at this point for businesses is that there is no clarity on when things will normalise.”

In order to stem the impact of the pandemic on the sector, Mr Sullivan suggests that companies take the following – digitally-driven – measures, including: (i) increasing their digital contact centre footprint to improve communication with customers; (ii) curating website content to increase self-service penetration; (iii) leveraging customer analytics to proactively tackle customer queries and complaints; (iv) offering digital payment solutions; and (v) implementing smart gamification strategies.

“While the external situation continues to be what it is and with a solution not in sight, E&U companies should look at building operational resilience and leverage digital innovation and strategic collaboration to tackle challenges,” concludes Mr Sullivan. “This will be important both in the short run and in the long run – when global markets recover, and companies have the competitive edge to survive and grow.”

That said, while the US and several European countries have announced that they expect to reopen parts of the economy over the coming weeks and months, the impact of COVID-19 on the E&U sector, among many others, are likely to be felt for years to come.

© Financier Worldwide

BY

Fraser Tennant