Due to the coronavirus pandemic, energy demand is shifting. In the UK, home energy use is up 30% in the middle of the day, while fossil fuel usage has dropped to a historic low as people don’t need to commute to work every day as they adhere to shelter-in-place restrictions.
Countries across the world have seen a massive drop in demand due to lockdown efforts – around 15% globally. This is due in large part to the closure of major factories – the automotive industry especially. Tesla, for example, shut down its main manufacturing facility in Northern California, along with nearly every other major automotive company across the world.
Power plants in particular are bearing the brunt of this shift in energy usage. In order to deal with it, most power plants have tried to hedge their power output on a forward basis in order to eliminate most risk factors. If it’s financially attractive to do so, they attempt to stop production and instead buy energy to offer intraday ancillary services.
On the other side, energy retailers have to deal with the cash-flow problems that come with extreme energy surplus coming from this drop in demand. They have to sell electricity for a much lower price than they bought it for. Additionally, they face an uptick in unpaid electricity bills as more customers are unable to make payments due to personal economic hardship.
What tools and strategies can energy retailers utilize to drive efficiency in an era of uncertainty?
Future of energy demand
Energy companies have certainly been hit by the crisis but as life slowly gets back on track, energy should be one of the first sectors to get better once the crisis stabilizes. As demand returns to normal levels, people will begin consuming energy at their pre-COVID rate.
But there are a few things that they can do to mitigate the effects of the changes in energy demand. One solution is to change energy penalties into something that can benefit the customer and the supplier. Many customers can’t afford to pay for energy, and a program that helps the customers stay with the supplier long-term will help both sides into the future.
Another solution is to make the price of energy more flexible. Currently, energy is at a fixed price for most customers – now that consumption has changed, this doesn’t work as well. Month-by-month agreements can improve this, as they give much needed flexibility to both sides.
Another thing retailers can do is improve the efficiency of energy trading. By enabling professionals to trade energy throughout the day, retailers can improve their financial performance on the intraday electricity market. Being able to have a quick reaction to non-standard and unpredictable energy consumption is key to success for energy retailers in this current climate.
Take advantage of new technologies
While this crisis may be pushing energy retailers to their limits, there are a few things they can do to survive.
Most importantly, they need to take advantage of new technologies in the energy industry. By implementing AI-powered predictions and flexible energy management, energy can be well-planned, efficient, and ultimately less harmful to the main power grid. Under a smart energy management system, energy retailers can regulate and optimize their energy production. Here is an example of solar power production with and without the help of a smart energy system.
Control over solar power production
January 2019 (without smart energy system) – 1-day example (24 hours from 0:00 to 23:59)
January 2020 (with smart energy system) – 1-day example (24 hours from 0:00 to 23:59)
The bottom graphic shows that in 2020, the energy produced by solar panels was causing less harm to the power grid and the system deviation was much lower than the previous year. This effect transmits into a more stable power supply and tremendous savings on the regulation costs (less ancillary services needed).
At the moment, not many energy retailers are using advanced algorithms to help with risk management. New technologies could help them to get through this crisis by making their energy production much more efficient. The more data shared by the customer, the better energy retailers can predict energy consumption on a case-by-case basis.
Another technology that retailers can use is energy storage. By installing control units to aid communication between storage and energy retailers’ systems, they can store surplus energy from the grid and sell accumulated energy when the demand is high. In these times, large-scale storage operators can make significant money by storing surplus energy from the grid – even more than by storing produced renewable energy.
These are unprecedented times for the energy industry and there is simply not an easy solution for the change in demand. However, a push towards efficiency may be the best way to help energy retailers survive the year.