The Covid-19 pandemic is the most unprecedented challenge facing the world in this century. The long-term impact of the crisis cannot be ascertained accurately but in the near term it has already caused disruptions in electricity demand, workforce, supply chain and economic growth. The power sectors across countries, therefore, need to build short-term and long-term resilience approaches to ensure safe and reliable operation during these times of distress. The United States Agency for International Development (USAID) and National Renewable Energy Laboratory (NREL) analyse the impact of the pandemic and potential opportunities for the Southeast Asian (SEA) power sector in a recently released report titled “Covid-19 and the Power Sector in Southeast Asia: Impacts and Opportunities”. Key excerpts from the report…
Power Demand: Like the rest of the world, electricity demand in the SEA region is undergoing several changes – electricity consumption has reduced significantly and shifted largely to the residential sector, creating an overall change in daily load profiles. With a temporary closure of businesses and a slowdown in manufacturing, commercial and industrial (C&I) consumption has fallen significantly.
This has impacted entities in the entire power value chain. For independent power producers (IPPs), the sudden and unplanned reduction in demand directly translates into less revenue which affects their debt servicing obligations and operating expenditures. The reduction in demand and shifting load curves also affect transmission as system operators have had to recalibrate their short-term forecasts and re-evaluate their infrastructure planning to respond to market conditions. Similarly, wholesale market operators are grappling with the effects of price declines, market distortions, and arbitrating revenue shortfalls for distribution among market participants. On the distribution side, higher residential demand is causing greater stress on the utilities’ lower voltage network as well as revenue reductions from the loss of high-volume C&I customers.
Though residential demand has increased (especially from air-conditioning loads) in most countries, it has been insufficient to offset decreased commercial load. For example, according to the Philippines Department of Energy, demand in the interconnected Luzon and Visayas grids has dropped by 30 per cent. Malaysia has seen a roughly 23 per cent drop in demand from the period its lockdown began on March 18, 2020 through late April 2020. In Singapore, system-wide demand dropped 8 per cent during the period from March 23 to April 25, 2020. As the region now enters the summer season, cooling loads – which comprise a significant portion of electricity demand in many SEA countries – are beginning to dominate the electricity system; however, as most of this demand is composed of distributed air-conditioning units at individual dwellings (as opposed to the central units in many commercial facilities), the efficiency of servicing cooling load has dropped considerably. This may increase demand at potentially vulnerable low voltage portions of the grid.
Some countries have initiated tariff relief for consumers as a part of their pandemic response. For example, Thailand’s state-owned Metropolitan Electricity Authority and Provincial Electricity Authority have reduced bills by 3 per cent across all tariff classes, extended the bill payment grace periods, refunded meter deposits for residential and small business users, and provided free power to users with power meters of no more than 5 Amps. On similar lines, Malaysia has provided for a 15 per cent discount on electricity bills for six identified business types (hotel operators, travel and tourism, shopping facilities, convention centers, theme parks, and local airline offices) as well as a 2 per cent discount for other business types and agricultural and industrial customers till September 2020.
Contracts and investment: In several SEA countries, contractual purchase of electricity is governed by power purchase agreements (PPAs) with “take or pay” clauses wherein the offtaker is obligated to buy the entire electricity, sometimes with a floor or ceiling price. In the last few years, Indonesia’s PLN has entered into many such PPAs with international IPPs which have locked the utility into fixed prices for much of its purchased electricity leading to oversupply issues. This oversupply has been exacerbated by the sudden impact of COVID-19 on demand. PLN is now in a situation where it must pay for the capacity even when it does not need the power from a planning reserve margin perspective. Similar examples can be found in Thailand and elsewhere in SEA. However, utilities have the option to restructure IPP contracts through the invocation of force majeure (FM) clauses. For instance, Meralco, an electric distribution utility in the Philippines, has invoked FM in several PPAs during the lockdown. Meanwhile, the Electricity Generating Authority of Thailand is considering delaying the commercial operation dates of small power producer plants with PPAs due to existing overcapacity.
Air quality and emissions: Owing to lower generation from thermal power plants (TPPs) and shutdown of industries, many countries have shown a temporary improvement in air quality. For instance, in Metro Manila, enhanced community quarantine measures caused a 45 per cent reduction in nitrogen dioxide levels as a result of both a transportation slowdown and declining power demand. The International Energy Agency (IEA) predicts that this pandemic will prevent 2.6 billion metric tonnes of carbon dioxide from being emitted into the atmosphere, or around 8 per cent of annual emissions, the single largest reduction event in history.
Energy sector workforce: The energy sector workforce across the electricity value chain is critical to keeping the lights on. Energy projects across SEA are witnessing delays due to shutdowns, concerns for worker safety, and a slowdown in regulatory processes. For example, in Lao PDR, the government has temporarily halted hydropower projects on the Mekong river. In the Philippines, without the ability to send out meter readers, privately-owned utility Meralco cannot accurately determine energy usage to collect payments. The utility is therefore utilising bill averages, which will be reconciled once workers are able to return to the field. Further, the National Grid Corporation of the Philippines (NGCP), the system operator in the Philippines, has enacted a quarantine-related protocol to ensure system operators stay safe and continue to provide this critical service. Likewise, Vietnam enacted strict quarantine measures to protect critical system operators and other workers.
Transition to clean energy: Though revenues from existing wind and solar projects have not faced any significant impact due to the Covid-19 crisis; however, projects in the pipeline have experienced slowdowns due to supply chain disruption, regulatory delays, and workforce issues. Also, since China is a key producer of solar panels as well as many raw materials (e.g., steel for turbines and rare earth materials for batteries) for the renewable energy supply chains, project developers have incurred additional costs and delays that could affect their returns or project milestones. Further, with the global economic slowdown, and the resulting fall in transportation and electricity demand, oil and natural gas prices have plunged. However, if this leads to a longer-term decline in oil and gas prices compared to pre-COVID-19 levels, investment in fossil fuel projects could revive, thereby hampering renewables deployment going forward.
Opportunities and recovery response
The pandemic has exacerbated threats across the power value chain but also provided opportunities for scaling up existing programmes or introducing new programmes to reform the power sector. For instance, taking advantage of the increase in residential electricity demand and subsequent growth in consumer bills, utilities can take steps to increase residential enrolment in energy efficiency and demand-side management programmes to reduce consumer bills and improve system reliability.
Also, utilities can undertake measures to move away from traditional structures (regulated monopoly serving electricity from large centralized plants and earning cost recovery plus a regulated return) to a more distributed structure with greater technology deployment. Steps such as electronic bill payments as well as investment in telemetry, supervisory control and data acquisition (SCADA) systems, and distributed energy resources should be undertaken to provide better grid services, improve operations, drive customer satisfaction, and ultimately reduce costs. SEA governments can also consider measures to develop a more market-oriented power sector to reduce state obligations and subsidies. In addition, countries should look at ensuring PPA terms in the future that enable access to full generator flexibility, especially as more variable generation comes online.
While a temporary economic slowdown has reduced pollution, reopening is beginning to bring pollution levels back up to pre-lockdown levels. Policymakers and regulators need to act to preserve pollution reduction by linking clean energy deployment and air quality improvements through future policies and regulations. Now is the right time for SEA countries to tap into a clean energy transition as part of the recovery process as countries take longer-term economic reform measures.
Building long-term energy sector resilience
The pandemic is not the first, nor will it be the last, threat to the power systems of the region, and this highlights the need for long-term resilience considerations in system planning and operations. Countries need to assess the likelihood and severity of natural and human-caused threats to their power systems, and implement solutions that improve the overall resilience of the sector.
Taking a step in this direction, Lao PDR recently performed a stakeholder-inclusive power sector resilience planning process, led by the Ministry of Energy and Mines and supported by USAID. Lao PDR, a country which is highly dependent on hydropower, is facing changes in precipitation patterns. The government has determined several priority interventions, including supply diversification, which are being incorporated into Lao PDR’s integrated resource and resilience planning process.
Also, microgrids can emerge as a practical solution to ensure continuity of critical services, such as hospitals, sanitation and emergency services, in the face of pandemics or threats. For critical facilities, technologies and practices such as microgrids with storage can provide power 24/7 in the case of prolonged outages. Generation resources should be diversified to build a resilient power system.
Further, power sector entities need to maintain adequate capital reserves and other financial resources to effectively respond in the event of a catastrophic disaster.
Last but not the least, greater focus needs to be laid on clean energy technologies from renewable energy and energy efficiency to storage and smart grids as they offer the benefits of cost competitiveness, fast-track deployment, and no emissions.
To conclude, it is imperative that SEA countries adopt long-term resilience strategies for the power sector through holistic planning, robust policies, and sound technical and institutional solutions.