Blog / Six months since lockdown: What’s happened to Britain’s electricity market?

Six months since lockdown: What’s happened to Britain’s electricity market?

7th October 2020

Six months on from the start of the coronavirus lockdown in March, we’ve seen unprecedented change. This change has affected all areas - home, work and beyond - and here, we investigate the significant impacts that this has had on the electricity market.

Electricity demand fell

Unsurprisingly, the first part of lockdown had a huge impact on electricity demand. With many working from home or furloughed, and almost all offices, factories, restaurants, and leisure facilities closed, electricity consumption on weekdays was at its lowest levels since 1982 – a time when there were 10 million fewer people in the country, and GDP was a third lower than today. Overall, total daily demand is estimated to have fallen by around 16% at its lowest point.

In fact, at one point during the six-month period, demand for electricity fell to the lowest level this century – 17GW on 28th June. For some period, weekday morning and evening peaks all but disappeared as routines were taken away. Differences between weekdays and weekends also largely vanished.

But, since businesses have reopened, more people are back at work, school and university and the economy has started up again with the support of schemes like Eat Out to Help Out, demand has quickly revived.

During August and early September, the demand for electricity (taking account of temperature differences between the two years) was only 3% lower that the corresponding period in 2019 – a significant bounce-back from the lowest points.

But, with cases on the rise again and increasing numbers of local lockdowns, it’s difficult to predict if this quick bounce-back will continue on its current trajectory, or how long it may last. The end of the furlough scheme in October will undoubtedly see more businesses let staff go, and as more of the economy comes off ‘life support’, demand may fall again. The uncertainty around the economic effects of Brexit also adds to the difficulty of making accurate predictions in more than the very short term.

Rising renewable generation

During Q2 2020, wind, solar and biomass generation was up 32% year-on-year, and all three set new generation records. This increased generation and lower demand resulted in a much higher proportion of energy generation from renewable sources. At one point, renewables provided almost 70% of Britain’s electricity.

Falling carbon intensity

This led to the cleanest-ever quarter as carbon emissions fell by a third compared to the same period in 2019.

Carbon intensity fell to 153g/kWh on average over Q2 2020 – the lowest average quarter on record. And the carbon intensity of electricity fell to an all-time low of 21g/kWh over the spring bank holiday.

This was enabled by the rise in renewable generation – partially owing to the sunny and windy weather at the beginning of lockdown – and a reduction in generation from carbon-emitting sources such as coal.

The grid ran without coal-fired generation for the whole of May – the first coal-free month since the industrial revolution – as the country went for a record 67 days without any coal being used at all. Gas-fired generation was also down.

Falling wholesale prices

The wholesale cost of electricity fell by 42% in Q2 owing to falling demand. As the economy has reopened and demand has increased, wholesale prices have begun to bounce back too. However, this has been offset by...

Rising costs to run the network

The most noticeable change in the electricity landscape since lockdown began has been the rise in the costs of running the network – and particularly in keeping the grid stable at 50Hz.

Renewable power sources such as solar and wind turbines are intermittent, making it difficult to keep the grid balanced. The system operator, National Grid ESO, has spent more money to ensure stability was maintained. Without stability, there are blackouts.

It’s not only balancing costs. Curtailment costs – paying generators to switch off or reduce their output - have also increased, costing around£20 million per month this year. National Grid also had to ensure there is sufficient generation at hand in case of sudden changes in supply or demand.

During lockdown, balancing costs of running the network rose from a typical average of 5% of the wholesale price of electricity to 20%. System stability costs have averaged £100m a month during the first half of 2020. These charges are normally levied per megawatt-hour (MWh) of energy used – but because energy consumption was lower throughout lockdown, the costs are much higher than usual.

To keep them to a reasonable level, Ofgem has capped the balancing service charges at a maximum of £10/MWh until late October 2020, with further charges up to £100m deferred until 2021. These increased costs are likely to be passed on to customers eventually in the form of higher Third Party Costs (TPCs).

This trend is a taste of what the future may be like with a decarbonised grid. There will be a greater need for renewable or carbon neutral energy sources that can also help balance the system and maintain stability – such as renewable, sustainably-sourced biomass.

Choosing the right energy supplier and tariff can help you to offset the impact of any increase in third party costs. To join Opus Energy, or to find out more about how we can help you, click the link below.

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