Energy demand impacted by the COVID-19 pandemics.
The current pandemic could help to create a perfect storm for the wholesale electricity market. There is a predicted lower demand due to mild weather, rooftop solar utilisation and people staying at home due to the pandemic. Also, there is currently lower domestic gas prices and the commissioning of large renewable energy projects which is increasing supply and market competition. This is generally having the effect of reducing spot and futures wholesale electricity prices.
Below are four scenarios for COVID-19 impacts on demand, covering a reduction in electricity consumption from 10-40 percent. This range reflects impacts from the current average for moderately restricted grids to more severe impacts. Scenarios reflect a possible quick ‘v-shaped’ rebound in consumption, or a sustained lockdown resulting in a ‘u-shaped’ rebound; with both substantially affecting electricity prices for the financial year 2020-21 and a return to ‘normal’.
These scenarios assume a decline in demand over April and May 2020 as industrial facilities continue to close or reduce consumption, with restrictions eased by July 2020 and a return to ‘normal’ electricity consumption levels 12-months later.
Lower global oil and gas prices have reduced domestic gas prices. This could see lower peak electricity prices and reduced impetus to open up new Australian gas basins. This also lowers fuel costs for gas peak generators.
On the supply side, around 1.6 GW of solar and wind capacity has been commissioned in FY19-20, leading to 27.5 TWh of solar and wind for the financial year-to-date, now just 0.6 TWh behind last year’s total solar and wind generation. Although we expect utility-scale solar and wind commissioning could hibernate for the next one to two quarters due to COVID-19 disruptions, we continue to forecast a total of 6.1 GW of solar and wind to be commissioned over the next two years, along with the contribution of another 1.2 GW of new rooftop Photovoltaic
Combined, the impact of potential COVID-19 demand cuts, lower domestic gas prices, and the commissioning of large renewable energy projects are predicted to result in sustained lower spot and futures wholesale electricity prices through 2020.