A mild Covid-19 scenario could see power prices recover already by 2022, while a severe recession caused by the pandemic would keep prices in the doldrums for another five years. Factors taken into accounts in these scenarios are the duration of lockdowns and implication on energy demand, commodity prices and project financing.
Power markets with a large contribution of gas-fired generation are seen hit harder by the recent fall in commodity prices.
“The effects of the coronavirus have rippled through European energy markets – significantly reducing demand and prices of gas and electricity,” Felix Chow-Kambitsch, head of commissioned projects - Western Europe at Aurora said, suggesting “European power utilities are likely to experience a significant fall in revenues in 2020.”
Project at risks
Utilities seeing their revenues slashed, with merchant-exposed renewables schemes significantly affected. Analysts warn up to 34 GW of new projects could be at risk of delay or outright cancelled.
While subsidized wind and solar projects have their revenues partly or full protected by the government, despite the fall in market prices, merchant-based project will bear the brunt of the crisis. Aurora analyst estimate just under 35 GW of renewable developments could be at risk as their revenue stream could fall by 20-50% dependent on the severity and length of the pandemic.
Slow recovery
Europe’s electricity demand is seen slowly recovering as lockdowns are gradually lifted in Germany and Spain, while Italy will follow in a weeks’ time. Power demand notched up as a consequence, with EU’s total power load rising week-on-week to 49.97 terawatt hours over the past week.
But electricity demand was still 7.5% below the same week last year, while the previous week it was 13.5% lower from 2019 levels.
“The worst is over in terms of hits to demand,” said Elchin Mammadov, an analyst at Bloomberg Intelligence. “Most utilities have written 2020 off. The recession is a bigger problem than weekly fluctuations in demand. We could see another drop later in the year.”