The lights are still on, the radiators still work and the taps still flow – so everything is fine, right?
COVID-19 has had a huge impact on our daily lives, jobs and industries including the NHS and broader health sector, transport and retail. But what about Energy and Utilities? The lights are still on, the radiators still work and the taps still flow – so everything is fine, right…? This sector is broad in nature, including a huge range of critical national infrastructure. From nuclear and coal through to wind, solar- and tidal- power generation; extraction, transmission, distribution and retailing of oil and gas; provision of gas and electricity services to businesses and consumers; and water and sewage services. All of that before we even scratch the surface on decarbonisation and sustainability.
Superficially, the Energy sector appears less impacted than a number of the 'obvious' sector candidates - we mentioned Health already, which, along with pharmaceuticals, is being stretched to the limit in some capacities (whilst conversely some hospital wards sit empty1 and various drug trials have stalled).2 Relative to the Financial, Transport, Tourism and Retail sectors, Energy has largely stayed out of the news. There are some key parallels with telecoms3 - for example the same number of people who need water, gas, electricity and broadband services hasn’t really changed. However, how, how much, what and where this consumption is happening and how its accessed and paid for has rapidly changed over the last few weeks.
Let’s take a look at some of the biggest impacts on Energy Operations, Consumers, Technology and Employees.
Following UK lockdown advice, electricity and gas demand reduced as industrial and commercial businesses scaled down operations, with the increase in domestic demand only slightly offsetting this position. The impact on water demand has been similar, with limited impact on domestic requirements. Energy demand has also smoothed from the usual peaks in the sector, driven by the disruption to daily routines like school runs or commuting.4 Lower consumption of electricity does mean that a higher percentage of this demand can be covered by renewable power sources. As we head into summer, demand for domestic electricity and gas drops anyway – as daylight hours extend and heating is switched off. This ‘double whammy’ for energy does mean that some power generation in the UK – both renewables and traditional fossil fuel plants – may be asked to close.5 That said, power generators that are able to supply flexibly on-demand are also still required for load-balancing, which doesn’t generally lend itself to renewable power sources.
Thousands of flights have been cancelled, people have stayed at home and factories are closed. Oil demand has collapsed. Due to a number of wholesale oil market interventions, disputes and supply controls orchestrated by OPEC+, oil prices were already falling prior to the impact of COVID-19 really being felt by the UK oil industry.6 This is an incredibly challenging time for the oil and gas sector in the UK with BP’s Bernard Looney stating that “this may be the most brutal environment for oil and gas businesses in decades”.7 Share prices are falling and oil companies are being forced to cut operating costs and expenditure. In the North Sea, key works remain offshore, at warehouse and logistics facilities, but for how long? It seems unlikely that the numerous Government-offered business support services will be able to prop up the industry for the medium-to-long-term without other factors changing.
Due to the high-risk profiles in the sector (and in the extreme, catastrophic safety events), the sector tends to have good business continuity plans in place. There has been an evident shift to focus on safety-critical work, such as gas leaks or sewage contamination, as well as enduring maintainability of the supply chain - with non-essential work and travel being reduced.
It has also been challenging for projects to move forward since companies are unable to get requisite permissions or permits e.g. planning permission for new houses which require electric, gas and water connections, as non-essential businesses are closed.
Ofgem has taken steps to increase network flexibility options for Distribution Network Operators, Gas Distribution Networks and Transmission Owners. This does mean activity such as maintenance, upgrades and more ambitious or forward-looking projects, companies will be faced with a challenge of how to prioritise and action this work once we are out of the other end of the pandemic in the UK. It’s highly likely that sector effort will need to continue to focus on surviving for a time rather thriving, as companies play catch up on this type of work whilst many seek to re-shape and ‘right-size’ their processes and organisation. New innovation and more ambitious projects and programmes could become essential (adding impetus) or cancelled or delayed, possibly by years. The UK smart metering rollout has been stopped in its tracks, as well as big infrastructure projects like Hinkley Point C have temporarily closed. As organisations ‘temporarily’ close complex infrastructure, typically maintenance is still required and there is significant and lengthy re-commissioning (many months long) required to bring them back on stream.
For customer-facing organisations, customer services and call centres have been forced to both ramp up, work from home and - due to staff sickness / care duties - operate with lower capacity. Consumer service quality levels have needed to continue, particularly in this period of heightened consumer concern and anxiety. Organisations have taken a number of steps to rapidly change the operating model for customer services across communications, automation and efficiency. There are frequent updates to communication channels, with more regular FAQs and proactive asks for consumers to self-serve using provider websites with links to WHO or governance advice. In addition, there’s further acceleration of automation of self-service – through refined chatbots and mining of datasets; as well as reducing or removing non-critical activities like asking for call ratings or attempting to upsell. This has been a fairly radical change enacted rapidly, and has forced some of the major players to ‘catch up’ to the more flexible and agile recent entrants to the market who are more used to operating in this way.
So whilst the lights will stay on and the taps will keep running, power plant closures and the oil price slump will inevitably have impacts on organisations’ profitability, cashflow and ability to remain in business. In the short-to-medium term, it is likely that a number of smaller (and some bigger) players could potentially go under.
Like many industries, the domestic energy sector has been largely focused on serving their most vulnerable customers. BEIS published a number of emergency measures to ensure the protection of energy supply8 for consumers. This is particularly important for prepayment meter customers, with a whole host of measures being launched to extend credit. This is through provision of pre-loaded energy keys, further extension of channels to facilitate top-up, along with a number of companies creating hardship funds.9 Interestingly, vulnerable consumers are often the costliest to serve and may be on lower incomes to start with. As a group they often include disproportionate numbers of renters, registered disabled, non-computer literate, elderly or chronically ill. These numbers are compounded by those who are unable to work due to directly or indirectly suffering the impacts of COVID-19. Perhaps positively, the current crisis has started to shine more light on the circumstances of vulnerable consumers. This includes increasing the visibility of prepayment- or standard viable tariff- customers who are often within the lowest income brackets but paying the highest prices for their energy. In the longer term, this is likely to prompt further regulatory action and protection for the most vulnerable.
Working from home for many of us means more time with the TV on, laptops plugged in, lights on, fans blasting – all which mean that many consumers may be spending more on their domestic energy bills. Price caps introduced by Ofgem in 2019, and refreshed regularly, are keeping pricing units down with a further £17/year being introduced for prepayment tariffs. For example, from April 1st. Whilst the price cap is helpful, as consumption increases throughout this period, consumers will still need to consider their options, think about taking steps to switch suppliers, and deliberately keep consumption down.10 Technology free evenings anyone?!
Prior to the announcement of the global pandemic, Ofwat had been taking a similar approach to Ofgem, putting pressure on household water and sewage companies to reduce consumer bills. Consequently, from April 1st these fell by an average of 4%. To support consumers, water companies are introducing payment holidays or payment matching, taking advantage of affordability schemes and have been encouraged to boost communications, particularly for their most vulnerable customers. 11 For B2B consumers, Ofwat and MOSL have made urgent code changes to ensure water bills are more closely aligned to actual consumption reduction caused by business closures, as well as introducing a series of measures that offer liquidity support for businesses. The regulator has started to publish consultations about longer-term measures to address these challenges, in particular on how the market might deal with volumes of bad debt – a massive unknown in the current climate.12
Perhaps time for some (partially) good news. Whilst petrol suppliers tend to smooth out the direct impact of oil price fluctuations, the recent slump has translated into lower prices at the pumps. Demand for petrol has also fallen.13
However whilst these prices might be great for consumers, competition has driven petrol and diesel margins down for fuel retailers. Whilst we know supermarket forecourts often use petrol prices as a loss-leading strategy to tempt drivers into stores, the record-low pricing does put many independent retailers at risk. It’s likely that many more forecourts across the UK will be forced to close, particularly in rural areas. This in turn will reduce price competition and impact consumers’ options about where they can fill up.
We have already discussed the need for companies to effectively prioritise operations based on manpower availability, which will likely lead to delays in power projects.14 In addition to this prioritisation and corresponding catch-up required, there will also be issues with sector technology supply chains and securing project financing. When we take renewable technologies as an example, this has a global supply chain that is facing drastic disruption. For low-cost solar components, much of this comes from China and for wind, materials come from Europe and China. Projects in this space are already facing an array of logistical delays. China also plays a key role in the provision of imports for battery technology. There have been some reactions to try and support delays in the industry. For example, the UK has revised the fourth leasing round timetable for awarding rights to sites capable of supporting 7GW of offshore wind.15 These challenges may force the UK to examine its dependency on other regions and work on upping self-reliance for domestic energy technology components and production. Whilst this is likely to be good for jobs and industry, it’s also likely to force up pricing – in turn making it more challenging to promote investment in renewable technologies, for example.
There should be no surprise that the sector has experienced growth in the uptake of online collaboration tools, with much of the workforce now operating remotely. Whilst many of these tools and processes were already in place adoption and utilisation have been forced on organisations at an unprecedented rate. Since energy companies tend to be slow adopters of technology compared to market leaders like telecoms and retail, this transition has been a steep learning curve for many organisations. Technology, in turn, is supporting organisations to take some of their most complex transactions online – for example, large power stations are starting to think about how to manage outages with numbers of the workforce social distancing. The advantage of many renewable generators is that they can largely continue to operate whilst being unmanned, with provisions already in place to allow remote working – think offshore wind. It will be fascinating to see how these diverse impacts translate into significant change in the sector, and what this means for longer-term technology strategies.
Less than a year ago, on the 9th August 2019, the UK had its worst power blackout for a decade16, caused by a lightening strike and it’s ripple effects of disconnecting an offshore wind farm and steam turbine shut-down at a gas power station. This impacted 4% of national demand across England, Scotland and Wales for up to 50 minutes.17 Whilst this might sound like a nuisance at worst, the impacts of 50 minutes without power during Friday rush-hour rippled out across the country.
1.15 million customers lost power. Around 50 trains were shut down and stranded with thousands of passengers evacuated and c.600 services being cancelled. Stations and signalling was affected. Newcastle Airport was disconnected. A number of water pumping stations were disconnected with 3,000 customers disrupted. An oil refinery was automatically disconnected to protect site equipment, taking weeks to restore normal operations. Two hospitals were disconnected, with standby generators kicking in to cover some, but not all, services. A further hospital was impacted by the fall in power, with one generator failing to kick in.
This disturbance rippled out across the grid, and the National Grid was forced to trigger its first and then, following failure of another gas turbine, second line of defence – cutting power to millions of customers across the grid to force demand down to align with supply. Looking back at this through the COVID-19 lens, the risk of this occurring again has not reduced, and the potential impact may have increased.
The National Grid, Ofgem, BEIS and the Electricity System Operator (ESO) were working through incorporating recommendations and lessons learnt this spring, and has probably faced disruption. (The rules and regulations have not been able to keep up with the changes and advances in technology). There is real concern as to how to manage this kind of emergency response with a more distributed workforce and complex return-to-operation processes. With increased pressure on the NHS in particular for the foreseeable future, the risk and potential impact of this kind of event has is never been more important to mitigate.
Over the preceding topics, it’s inevitable that we have already bumped into impacts on employees. Many staff in this space are considered key workers and are directly at risk of infection, which is exacerbated by an aging workforce in parts of the sector. Remote working is a big change and has been a steep learning curve.
A number of large energy companies are being hit hard by COVID-19, with over half of the new ‘big five’ moving to furlough staff under the UK government Coronavirus Job Retention Scheme – British Gas has furloughed 3,800 staff (out of a total of c.20,000 UK staff) and cancelled dividend payments and bonuses for management. E.On is furloughing 3,000 of its staff and 1,000 of the recently acquired npower staff (out of a total of c.13,000 UK staff) and finally, Ovo has furloughed 3,400 staff (Ovo and SSE), with their executive team and senior directors voluntarily taking a 20% reduction in salary for three months.
Across the oil sector, companies are struggling with whether to put employees on furlough or move directly to mass redundancies – the low oil prices prompting Industry trade body Oil and Gas UK to forecast up to 30,000 oil and gas job losses over the next 18 months.18 We have also seen major oil companies cut the dividends, including Shell. Power station construction has also stalled, with Hinkley Point builders on furlough along with staff working in generation across the country.
Conversely, the UK’s biggest water companies announced that whilst they are shifting to remote working and conducting emergency repairs only, they are not planning to furlough staff.20 Many of these workers will have been hit with a reduction in income, with others being forced to change / reduce hours and working patterns. The Government’s scheme also does not offer protection for businesses that fail as a result of this crisis. Organisations are already exploring how to slim operations and bring down costs to emulate remote / furlough working arrangements and increasingly depend on technology and automation. Sadly, large numbers of job losses are also likely.
This pandemic emphasises the importance of organisational succession. Across the energy sector, there are a number of skills which are very specialist due to the requirement for highly technical skill-sets and / or the accrual of years of experience in a particular unique role – for example, head of engineering for an aging power station or the lead nuclear reactor operator. As key individuals are affected, many companies will not get a second chance if they cannot adapt immediately to effectively backfill and ensure continuity of their business. This could impact disruptions to service all the way through to safety risk. The issue is exacerbated in the sector by the falling number of STEM-skilled resources available and the brand perception19 – sadly the energy sector is not seen as very sexy! It’s incredibly unlikely that companies would be able to rapidly recruit someone from the open market that fits their needs.
As with a number of sectors, the Energy industry is adjusting to a new set of norms. Regulators and policy-makers have been quick to take action and it will be key that the industry takes an agile, tolerant and collaborative approach to the response. Organisations will quickly adapt to key lessons, whilst keeping security of supply and safety at the heart of decision-making principles. It’s also clear that large parts of the sector face a huge amount of risk – for continuity of supply, to the survival of organisations and for job security. Change is upon us, and there is a fascinating journey ahead to navigate.
1. NHS hospitals have four times more empty beds than normal https://www.hsj.co.uk/acute-care/nhs-hospitals-have-four-times-more-empty-beds-than-normal/7027392.article
2. Coronavirus shuts down trials of drugs for multiple other diseases https://www.nature.com/articles/d41586-020-00889-6
3. How UK operators are helping customers during the COVID-19 outbreak https://telecoms.com/503171/how-uk-operators-are-helping-customers-during-the-covid-19-outbreak/
4. Domestic energy usage patterns during social distancing https://octopus.energy/blog/domestic-energy-usage-patterns-during-social-distancing/
5. COVID-19: UK wind farms could be 'switched off' https://renews.biz/59742/covid-19-uk-wind-farms-could-be-switched-off/
6. Why oil prices are crashing and what it means https://edition.cnn.com/2020/03/09/business/oil-price-crash-explainer/index.html
7. BP Stock Falls as Oil Giant Cuts Spending and Slashes U.S. Shale Output in ‘Brutal’ Environment https://www.barrons.com/articles/bp-stock-falls-as-oil-giant-cuts-spending-and-slashes-u-s-shale-output-in-brutal-environment-51585743172
8. Covid-19: What energy suppliers are doing to help customers https://www.cse.org.uk/advice/advice-and-support/support-from-energy-suppliers-during-covid-19
9. Protecting and empowering consumers in vulnerable situations https://www.ofgem.gov.uk/about-us/how-we-work/working-consumers/protecting-and-empowering-consumers-vulnerable-situations
10. Good news – your energy bills could be going down https://www.which.co.uk/news/2020/02/good-news-your-energy-bills-could-be-going-down/
11. Information on the water industry and Coronavirus (Covid-19) https://www.ofwat.gov.uk/regulated-companies/markets/business-retail-market/information-on-the-water-industry-and-coronavirus-covid-19/
12. Wholesale Retail Code Change Proposal – Ref CPW094 https://www.ofwat.gov.uk/publication/wholesale-retail-code-change-proposal-ref-cpw094/
13. Petrol stations ‘will have to close due to impact of coronavirus’ https://www.itv.com/news/2020-04-01/petrol-stations-will-have-to-close-due-to-impact-of-covid-19/
14. Covid-19 will have high impact on renewable energy projects https://www.power-technology.com/comment/covid-19-impact-renewable-energy-projects-poll/
15. Offshore Wind Leasing Round 4 https://www.thecrownestate.co.uk/en-gb/what-we-do/on-the-seabed/offshore-wind-leasing-round-4/
16. 9 August 2019 power outage report https://www.ofgem.gov.uk/ofgem-publications/160293
17. GB power system disruption on 9 August 2019 Energy Emergencies Executive Committee (E3C): Final report https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/855767/e3c-gb-power-disruption-9-august-2019-final-report.pdf
18. Up to 30,000 oil and gas jobs could be lost thanks to coronavirus https://www.telegraph.co.uk/business/2020/04/28/30000-oil-gas-jobs-could-lost-thanks-coronavirus/
19. Investigation into high-level skills shortages in the energy sector https://erpuk.org/wp-content/uploads/2014/10/ERP-Skills-Brochure.pdf
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