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European electricity demand derailed by COVID-19

In the past month, the rapid escalation of the COVID-19 crisis has gradually paralysed Europe. The restrictive measures and lockdowns imposed by national governments to curtail the spread of the virus are having serious repercussions on the energy sector, including electricity consumption.

Latest reports suggest that the worldwide disruption in economic activity put downward pressure on power demand across Europe. Week-on-week data on electricity consumption can shed some light on the real-time effects of the COVID-19 pandemic on European economies as well as on the potential long-term ramifications of the virus for decarbonisation strategies and the renewables sector.

“Every country in Europe has seen electricity demand fall 2-7 per cent week-on-week,” – climate think-thank, EMBER stated in their report on the short term implications of the virus outbreak based on electricity demand data aggregated from local system operators across Europe. These are very significant falls in the context of electricity demand, where temperature-adjusted changes are normally small.

Source: EMBER

The most affected power market is unsurprisingly Italy, as the epicentre of the outbreak in Europe and the country with the most stringent restrictions in place. Although the week-on-week fall was 12 per cent, there was already an 8 per cent impact from the previous week, implying a total impact of 20 per cent over the last two weeks. Another report published by the Independent Commodity Intelligence Services (ICIS) measured that power consumption in Italy has dropped by one quarter or nine gigawatts (GW) since the outbreak.

The model of ICIS took account of falling electricity demand across Europe’s five biggest power consumers (the United Kingdom, Germany, France, Italy and Spain). As the largest consumer of electricity, Germany experienced the mildest fallback in demand of the five countries, with demand steady at around 8 per cent or 5GW below expectations for almost a week.

Electricity markets of Central Eastern Europe haven’t been left intact either. In the largest regional economy, Poland, power demand has been decreasing from week to week due to stoppages caused by the coronavirus pandemic. Year on year change in demand was down by 7.4 per cent in the fourth week of March as the virus-related measures took effect.

In Hungary figures of the transmission system operator show that the average daily peak load, which is usually above 6000-6200 MW has gradually decreased over the last two weeks and is now close to the demand registered during the Christmas holiday at the end of the year. Overall, the electricity demand decreased by 5 per cent by the end of March.

In the Balkans, the electricity demand has decreased up to 10 per cent in Bosnia and Herzegovina and Albania, while Kosovo, Montenegro and North Macedonia haven’t reported any major changes yet. Serbia’s power utility announced that electricity consumption fell by 5-7 per cent in the past month.

Although the falling demand is apparent all over Europe, we are still early in the disruption to draw far-reaching conclusions. ICIS notes that the relationship between power demand and price is not one to one, instead, it depends on the marginal cost breakdown of each country’s fleet of power plants. But the development of the price of electricity futures is fundamentally influenced by expectations on the demand and supply side and the downward pressure of the Europe-wide decline in consumption is already visible on the big power exchanges in the region.

Looking at the weekly data of the day-ahead market of the Hungarian Power Exchange (HUPX) or Polish Power Exchange (Towarowa Giełda Energii, TGE) the decrease of electricity prices is visible throughout March, since the outbreak of the virus. The continuation of this trend is uncertain, however, and the prolonged suspension of industrial activity would send a strong sign that electricity consumption will keep falling in the coming months.

Another crucial factor is the change in carbon prices within the EU Emissions Trading System (ETS). The widespread lockdown measures together with market speculation have sent the carbon price under the EU ETS in a nosedive, with prices dropping by almost 40 per cent to a near two-year low just above 15 euros/tonnes of carbon dioxide according to the estimates of the international NGO Carbon Market Watch.

Considering Central European countries’ and especially the Polish power industry’s heavy reliance on coal, the cost of carbon emissions can set back transition. Data of EU ETS show that last year Polish PGE’s Belchatow coal-fired power plant took its biggest step so far by reducing emissions by 5.6 million tonnes, suggesting that higher carbon prices just started to have an impact. With the cost of pollution going down, shift to renewable sources might be at risk as well, although the crisis pushed down renewables prices too.

Fatih Birol, Executive Director of the International Energy Agency (IEA) highlighted that for certain regions with high shares of wind and solar generation the declining demand will potentially offer an opportunity for renewables to take up an even higher share of generation than usual. While for others the weaker electricity demand means power generation capacity is abundant, which presents significant challenges for how to operate baseload power — in the form of both fossil fuels and nuclear — while managing fluctuating renewables generation on the grid.

“This is an important moment for our understanding of cleaner electricity systems, including some of the operational challenges that policymakers and regulators need to address to ensure electricity security,” said Mr Birol.

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