The huge disruption caused by the Covid-19 pandemic has highlighted how much modern societies rely on electricity. The world’s power systems are critical infrastructure that is keeping our societies running, our hospitals open, and our communications functioning.
The response to the Covid-19 pandemic has led to a dramatic reduction in electricity demand in affected systems from as little as 5% to over 25%, depending on the scope and duration of lockdown measures and the structure of the different economies. The new IEA Global Energy Review suggests that global electricity demand could fall by 5% overall in 2020, and by up to 10% in some regions. However, the longer-term outlook for electricity demand remains strong, and electricity is set to take a steadily higher share of final energy consumption.
Most importantly, today’s market conditions are creating new uncertainties and risks for investment, creating potential security and sustainability challenges in the longer term. With lower demand and downward pressure on prices, power companies are facing lower revenues and, in a number of countries, deferred payments by customers. Many utilities around the world are likely to be financially weaker at the end of this shock, including state-owned companies in emerging economies that were already under financial stress. Financial market volatility adds to the uncertainty, with many investors opting for heightened capital discipline over new transactions.
Restrictions on moving workforce and goods, together with disruptions to supply chains, have also slowed progress with new investments and pushed back project timetables in many instances.
Overall, as detailed in the IEA’s forthcoming World Energy Investment, this year’s capital expenditures for power are set to drop. Renewable projects have been relatively resilient to the downturn, both in terms of output and new investment, but the pace at which low-carbon projects are moving ahead is significantly lower than two years ago with a projected growth in 2020 of 5 % year on year, compared to 7,5 % in 2018. Global investments in networks, flexibility and storage are also misaligned with the needs of sustainable and resilient power systems with higher shares of variable renewables.
Governments have a crucial role to ensure the secure and sustainable development of the electricity sector both in the short and long term. Almost all power sector investments respond to full or partial revenue guarantees that are established by government regulation. Governments have to be vigilant on near and long-term risks to electricity security and ensure that tomorrow’s systems remain reliable even as they are transformed by the rise of clean energy technologies. Well-functioning financial markets also have a part to play in lowering the cost of capital and improving the confidence of developers to invest.
The purpose of this Ministerial Roundtable, co-chaired by the IEA Executive Director, Dr. Fatih Birol and the Rt. Hon. Kwasi Kwarteng M.P, the United Kingdom Minister for Business, Energy and Clean Growth, is to bring together governments and the electricity industry to discuss:
- The short and longer term impacts of the Covid-19 pandemic on the electricity sector
- What the crisis means for evolving opportunities and risks facing power sector investments
The investment frameworks that can attract capital from a diversity of sources in order to achieve secure and sustainable power systems.