Non-energy charges set to rise due to falling energy demand

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As a result of the government-imposed lockdown, energy demand for power has fallen dramatically, declining by 0.10TWh against March 2019. Research from Cornwall Insight predicts that if this 0.10TWh decline is maintained across the originally announced three-week lockdown, the aggregate impact of this daily decline across this period would be equivalent to an approximate 0.50% decline in total annual demand.

Due to many industry charges being calculated at £/MWh, a long-term reduction to energy demand could have a knock-on effect on non-energy charges such as the Balancing Services use of System (BSUOS) charges and charges for the Feed-in Tariff (FiT).

Sam Holland. analyst at Cornwall Insight said, “In the first part of March, the average daily power demand was 0.78TWh, only slightly below the seasonal normal. However, demand began to fall between 20 – 23 March as schools and businesses were asked to close.

“Several large end-users had already scaled back demand as a result of the pandemic, including manufacturers unable to source parts from overseas. A similar trend was seen in the service sector as most bars, restaurants, pubs, gyms, cinemas, and many schools closed. These two sectors represent around two-thirds of total power demand, and their partial closure has resulted in aggregate daily demand falling by 0.1TWh against March 2019.

“Longer-term consequences driven by the fall in demand could affect non-energy charges. This is due to smaller charging bases for networks and policy subsidies and the changing of consumption patterns for households and businesses.

“Eventually, these increases to non-energy charges could be passed down to the consumer bill at a time where some customers are facing financial difficulties due to Covid-19, as they are urged to stay at home.

“It is expected that we will see disturbances to price caps from summer 2020 onward. There is also the potential for challenges in electricity system balancing if demand remains low, and the existing generation fails to operate.”