Covid-19’s devastating effects have impacted every aspect of life, and its impact on the utility sector is coming into focus. “Some merchant generators, which are directly exposed to market prices and lower demand, are likely to face financial challenges,” said Frank Graves, a co-author of the Brattle Group’s report on the implications of Covid-19 for electric and natural gas utilities.
From the beginning of February 2020 to the end of March, there have been widespread electric load declines of 3% to 11% across the U.S., but a bit less than half of those reductions are probably attributable to Covid-19, the report said.
For some utilities, the cost of capital has already increased due to increased volatility and cost-recovery risks, even though Covid-19’s direct impact on the utility sector has been relatively muted, possibly due to the industry’s essential service status.
Much will hinge on how long the pandemic persists and how readily consumers and businesses rebound, the report’s authors noted. “We expect the impact of Covid-19 to become more discernible in the coming weeks as information emerges about how long the business closures are likely to last,” Graves said.
The U.S. Energy Information Administration’s (EIA) is already projecting that Covid-19 will cause a 4.9 GW delay or cancellation of previously planned capacity expansions through September 2020. This contraction is noteworthy because a significant portion of the infrastructure projects that were in the pipeline involve renewable generation. That said, the EIA still expects an 11% net growth in renewables this year.
At this stage, it is unclear if Covid-19 related disruptions to state legislative processes will push back renewable energy goals and subsidies or if renewable energy projects will become more favored because they could be a vehicle for creating jobs.
States’ ambitious distributed energy resource (DER) plans and consumers’ electric vehicle purchases might be put on hold amid the Covid-19 induced economic uncertainty. Low fossil fuel costs make DER savings smaller, and consumers’ reduced wealth, from exhausting their savings during the shutdowns, might reduce EV adoption, the report said.
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