Effects of COVID-19 on the Energy Sector

Effects of COVID-19 on Energy

The past few months have been hectic across the world, with almost every country feeling the impact of the crisis brought by the novel Coronavirus.  The energy sector has already felt the impact since the outbreak ensued; there has been a low demand of oil, which resulted into a decline in production and a further decline in oil prices. According to the IEA Oil Market Report – April 2020, global oil demand is expected to fall by a record 9.3 mb/d year-on-year in 2020. Gas prices have also dropped significantly due to COVID-19.

The trend of falling demand and reduced prices can also be seen in the electricity sector, with power prices turning negative especially in Europe. Closer home, Kenya is not immune to the impacts of the global pandemic as its economy is mostly driven by the agricultural sector in terms of exports and also tourism; Kenya has been exposed to a significant economic impact in the months ahead.

Energy services are critical in prevention and fight of disease, as it powers healthcare facilities, supplies clean water for hygiene and enables communication between people while maintaining social distancing yet not everyone has access to this precious commodity. Some of the impacts that the energy sector has faced since the outbreak of Coronavirus include:

A delay in provision of solutions

Some equipment are usually outsourced and with the current pandemic, that has led to significant closure of borders and ports, there is a delayed access to equipment and project sites, thus affecting the timeline of delivery of projects. Such equipment like batteries, solar panels, inverters, smart meters and more are mostly imported. Companies in Kenya have ceased or decreased capital expenditures where possible and the energy sector is no exception. The renewable energy sector is also feeling the impact of the pandemic, with a delay in delivery of equipment to power plants. China, being one of the countries that was heavily affected by the outbreak is the main global producer of many clean energy technologies such as solar panels, wind turbines and batteries. Production had to be stopped for a while as they fought to contain the disease.

Slowed access to finance

Electrification requires high capital but due to the pandemic, there has been a slowdown in access to finances to provide electricity especially in the rural settings. Financiers like World Bank are usually willing to make funding available for such developments but with the current global health crisis, that is affecting the global economy, there is a slowdown in access to finances. This also means that the rate of electrification will also be slowed down if appropriate measures to increase liquidity are not taken.

COVID-19 has affected the economy and operatiorns across the world

Inability to pay for electricity

With the current lockdown and social distancing measures, the demand for electricity has increased, especially for households. Yet, most people have to stay home without going to work, hence affecting their daily income, especially workers who earn a daily wage. With the increased demand for electricity at home, some users may not be in a position to pay for the utility bills. The reduced earning capacity has made it impossible for consumers to pay for electricity. The looming impact of the pandemic begs the question; “What measures are being put in place to prevent distortion of the MDGs?”

There has been massive disruptions that were not foreseen across the world, especially with the healthcare industry struggling to contain the disease and people relying on electricity while confined in their homes. Africa has been known for so many years to be home to a higher percentage of people living without electricity, and for this reason, the energy sector is working twice as hard to deploy solutions that can provide life-saving energy access to the people that need it most.