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How COVID-19 is changing the energy market, and your electricity bill

How COVID-19 is changing your electricity bill

COVID-19 has brought disruptions to almost all sectors of society. It has affected more than 100 countries across the globe with cases rising daily, especially in Europe and America.

The outbreak started in Wuhan China and has quickly become a pandemic that continues to threaten public health and brings challenges to many industries, including the energy industry.

So what does this mean for you as an electricity consumer?

The government's public health response has changed the way many households and businesses use electricity. We've gathered some insights about how COVID-19 may affect your energy bill, the electricity industry, and what we can expect from this situation as it continues to unfold over the coming months.

How COVID-19 is affecting energy consumption

The government's public health response, such as social distancing rules and lockdown regulations, has forced companies and schools to change the way they operate, from enabling people to work from home to shifting entire organisational structures to go digital.

With people spending more time at home in lockdown, we expected to see demand for electricity increase during the day. However, we've actually seen reductions in overall energy demand, primarily due to industrial and commercial businesses closing, or reducing operations.

According to reports, the dip in energy demand from industries is likely to be higher than the increase in domestic demand. The International Energy Agency (IEA) reported an average 15% decline in energy demand in economies that have implemented strong confinement measures that resulted in factories and businesses shutting their doors.

When Italy locked-down in March, they experienced a 21% drop in peak demand after only one week. In the UK, lockdown caused an immediate 5-10% reduction in electricity demand. The World Economic Forum stated that the UK's lockdown caused the usual morning electricity peak to flatten as energy consumption for lighting, heating and cooling were spread across the day. China saw the most significant drop in national electricity consumption in five years, mainly due to a reduction in industrial consumption and energy use from the service sector.

Melbourne-based consultancy RepuTex expects that Australia's electricity consumption could reduce by up to 40% if industrial facilities remain closed through to the end of May.

Energy production and cost of electricity

Globally, declining energy demand has forced several coal plants to operate at a lower capacity. Here at home, lower Australian coal prices in overseas and local markets have been influenced by the sudden decline in demand from China - one of the major export destinations of Australian thermal coal. Lower fuel costs and reduced demand are leading to lower wholesale electricity costs for Australian consumers.

According to Reputex's report, the average wholesale electricity price across the NEM (the National Electricity Market) is likely to fall to about $69 per MWh or 6.9c per kWh in 2020. The declining price trend is expected to continue over the next two years to around 5.5c per kWh.

Lower energy prices will be available to consumers through wholesale energy retailers like Powerclub. Taking advantage of these savings will help to keep your bills under control as your energy use increases with the family remaining at home.

Impact on the use and production of renewable energy

As energy generation from fossil fuels reduces, several countries are seeing growth in renewable energy generation to meet electricity demand.

In the United States, renewable energy is expected to account for up to 21% of the country's generation - a significant increase compared to 18% in 2019. The IEA reported that regions with declining energy demand and high solar and wind generation, such as Spain and California, could also increase the share of renewable energy generation if favourable weather conditions continue.

However, there are concerns about the impact Covid-19 will have on production and holdups in project development in the renewable energy sector.

Wind Europe, an association advocating for wind policies in Europe, says that new farm projects are likely to be delayed due to COVID-19 because of interruption in the supply of materials from China.

The solar power industry is also experiencing delays in project development. Hold-ups in solar panel manufacturing facilities have also been highly influenced by the suspension of solar panel shipment from China - the largest supplier of raw materials and a key player in the global supply chain of solar equipment manufacturing.

Aside from delays in supply chains, the pandemic has also caused financial disruptions in government agendas. Countries are diverting billions of funds to support efforts to slow the spread of COVID-19. Experts expect further delays in the transition to renewable energy as governments focus remains on the health emergency, limiting financial support available for the renewable energy sector.

In Australia, the sector has taken a hit with predictions of postponement, or cancellations of projects that were to provide around 3 GW of solar and wind capacity. The country was supposed to roll out up to 2GW of PV projects in 2020 alone. Construction has begun, or is scheduled to commence on 530MW of PV capacity; however, the falling Australian dollar is expected to hinder future projects.

To help boost the solar PV uptake, the Australian government has released an Economic Response to Coronavirus. The stimulus package is a reinforcement against jobs and investment losses. However, it also includes tax deductions for commercial and industrial solar PVs to provide relief to businesses through reduced energy bills. You can visit the Treasury's website to learn more about the stimulus package.

Impact on the environment

Lockdown rules haven't been all bad news. It has had an unexpected and positive effect on the environment with carbon emissions dropping worldwide as industrial activities decrease.

In China, energy and transport greenhouse gases are showing the most significant declines, with a 25% drop in emissions where coal-fired energy generation fell by 40%. China's Ministry of Ecology and Environment reported an 84.5% increase in "good quality air" days between January and March. New York's level of pollution also dropped by close to 50%, while European countries like Italy, Spain and the UK are seeing reductions in nitrogen dioxide emissions - a pollutant mostly released by diesel vehicles and electric power plants using coal or natural gas.

In Australia, nitrogen dioxide levels vary from city to city. Urban centres like Brisbane and Sydney have seen pollution decrease to an average of 30% due to containment measures against COVID-19.

While lockdown measures are positively impacting the environment at the moment, many experts believe that the short-term drop in greenhouse gasses is unlikely to have long-term environmental benefits. Carbon dioxide exists in the atmosphere for an extended period, so a short-term emissions reduction may not bring us closer to the 1.5C global temperature limit.

Experts fear that as soon as the global economy recovers, the rebound in pollution will more than offset the current drop in greenhouse gas emissions. We have evidence that this is a highly probable outcome as recently in 2008 when a similar instance occurred during the global financial crisis.

It is challenging to make a precise forecast on the eventual impact of the COVID-19 crisis on global warming. However, the present situation proves to us that we can make positive changes in the fight against climate change with the same urgency we're using to combat the virus.

The energy industry's response

Around the world, power generators and energy retailers are working together to ensure people have access to reliable electricity while ensuring the health of their workers. Businesses within the industry are implementing safety measures to guarantee continuous operations, reading of meters, fixing faults and connecting with customers.

Here at Powerclub HQ, we've gone 100% virtual. We implemented 'work-from-home' policies for our entire Australian-based team very early on. As a small team, our priority is to protect the health of our people so we can continue our services without interruption.

Powerclub's Hardship Program is available to residential and small business Members who have been financially impacted by COVID-19. Our priority is to ensure our Members stay powered-up and connected through these difficult times, which is why we guarantee that no Member receiving hardship assistance will be disconnected.

Governments in New South Wales, South Australia, Queensland and Victoria are also offering a range of programs and concession rebates to help Australians during these times. In Queensland, the government has already announced a $2.5 billion Utility Assistance Package for Queensland households and businesses.

We encourage Members to get in touch with our Customer Service Team to discuss payment options if they are struggling. We can provide advice on relevant government assistance programs and help ensure all applicable government concessions and rebates are applied to their accounts. For non-urgent queries, we recommend getting in touch by email to help reduce wait times for those in need.

We're committed to providing as much community support as possible, including tips to help Members save energy while self-isolating and working from home. We're always on the lookout for ways to reduce electricity rates and minimise operational costs where possible. We have been tracking the downward trend in wholesale energy prices. If the decline persists, we anticipate being able to reduce our rates by as much as 3c per kWh, which will help many Australians in these uncertain times.

To sum it up

The global pandemic has brought the world to a standstill. As industries continue to cope with the various challenges, a focus remains on developing long-term strategies to deal with the effects brought about by the crisis.

For the energy sector, the outbreak highlighted the need for reliability of supply, green energy solutions and an economically viable future. Electricity is crucial in enabling modern communications, health service delivery, and the continuous operations of businesses to drive economic growth. It also plays a huge part in addressing environmental issues such as climate change.

We now have an opportunity to take steps to enhance the resilience of our energy infrastructure. Innovative energy solutions and support for sustainable energy development will be vital in reducing economic vulnerability in the future.

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