Security of Power Supply – One of the Few Certainties in Uncertain Times
Date: April 28th 2020
Author: Danijel Levičar
The Covid-19 pandemic has turned our lives upside down. Fleeting news items on the efforts to contain a new virus in China had suddenly escalated into alarming reports about the uncontrollable spread of the virus across Europe and the urgent need to take strong measures to control it.
The new reality and response from the energy industry
The energy industry has been no exception. To respond to the new reality, our primary focus has been on measures to protect the health of employees as a prerequisite to keeping our key business processes running smoothly. The Slovenian government has helped prioritise and adopt the emergency measures by working with the Ministry of Infrastructure to draw up a priority list of critical infrastructure sectors, putting the energy industry, a sector in charge of power supply, at the very top of the list. The government has called on all energy operators to continue underpinning, through their activity, the functioning of the state, its economy and especially its health care system.
The infrastructure ministry’s letter has in many ways facilitated the adoption of emergency measures in utilities, for instance by helping create the conditions for isolation of the core operational staff. Working in shifts, these teams are crucial for the 24/7 processes that power other subsystems of society and enable their more or less ordered functioning in this challenging situation. In energy production, transmission, distribution and trade, special working arrangements have been put in place for these core teams. The same scheme has been used with the staff responsible for energy billing, to prevent disruptions in the energy industry financial flows.
When the globalised world disintegrates into national units
While focusing on Slovenia, we continue to follow the global picture. It is interesting and enlightening to watch the globalised world disintegrate into national units with every new ordeal. Each country acting alone, first tackling its own challenges as best as it can knowing its own specifics. In times like these, international solidarity is stripped of its ‘peaceful time’ dimensions, giving way to the importance of national self-sufficiency. The countries capable of being strategically self-sufficient in terms of food production, energy and water supply can now put all their efforts into the actions to contain the epidemic. Slovenia is in this position, largely thanks to its power sector, where self-sufficiency is a result of a high share of domestic sources, i.e. nuclear and hydro, in the national power mix.
To be able sustain this ‘new normal’ for the long term, the key infrastructure of the power system should be maintained and protected. Security of supply and self-sufficiency cannot be taken for granted; they are a result of very careful, deliberate past decisions regarding electricity generation, transmission, distribution and trade. Good coordination between these activities is a prerequisite for security of supply. As long as Slovenia can generate electricity by itself, in a secure way, ensure its efficient transmission and distribution to final consumers, and meet the conditions for transparent market functioning, the country is on the right track.
Vulnerability during recovery
Just as ensuring smooth operation of all the power related activities mentioned above, including financial flows, is key during the ongoing emergency caused by the epidemic, it will be vital during the economic recovery that follows.
In this process, the internal vulnerability of the power sector will need to be taken into account. The challenges we are facing now relate to the slump in demand as a result of lockdown. By metering the power consumption of business consumers, the power industry has a good insight into economic activity. Electricity consumption correlates closely with economic activity, and the latest data show that demand in businesses has declined by as much as 20%. This has two types of implications.
The first set of implications derives from the unused electricity. This is the energy leased, at a price x, by suppliers for their consumers based on expected volumes and now sold as surplus at a price y. As today’s price y is less than half the price at which the electricity was bought last year, the unused electricity will impact energy suppliers’ business results. Lower demand will also directly impact the revenues of transmission and distribution system operators. The power industry will most likely have to sustain this loss of cash flow by itself.
Lower demand is a result of stalled economic activity and restrictions in other spheres of society. The business performance of industrial, public utility and other companies will be put to the test, initially by reduced liquidity. To put it simple: the money to pay the bills, including energy bills and bills for other utility services, will run out.
How to stop the spread of the problem across the energy value chain
If the unused energy affects energy companies’ business results, unpaid bills and the subsequent loss of financial flow in the energy industry would create a domino effect and ultimately lead to a crash of the entire energy system. Therefore, we call on the government and decision makers to provide, within Slovenia’s so-called second anti-corona package, easy and quick special-purpose loans that help businesses pay energy and other utility bills. This would address the problem at its source and stop it from spreading across the energy value chain. Energy production, transmission, distribution and the energy market work as usual despite the epidemic, and should continue to do so for the benefit of security of supply.
The world, and with it the people and energy industry of Slovenia, are facing an unprecedented challenge. In the ongoing crisis, electricity has lived up to its role of an energy source of the future. By continuing to operate reliably despite the extreme circumstances, electricity companies have demonstrated that the strategic focus on the electrification of everything was the right choice.
An opportunity for strategic considerations of the ‘work – economy – electricity’ axis
As every challenge, the epidemic is in many ways also an opportunity. Spurred by the new reality, it is an opportunity for a new understanding of the importance of strategic values and goods, upon which we can build our future as a society and a country.
If our strategic considerations are based on the value of work, a healthy economy is needed to exercise it – an economy that creates the right conditions for good, creative and effective work that contributes to the quality of life. In this context, an efficient, reliable and self-sufficient power sector is what drives the economy. In this respect, Slovenia has been in an excellent position for decades, and our efforts will continue to focus on making the right decisions for decades to come.
While posing a myriad of challenges, the Covid-19 epidemic is, again, an opportunity to raise the awareness among policy makers, decision makers, entrepreneurs, civil society initiatives, the media, and other key stakeholders about the importance of reliability and self-sufficiency of Slovenia’s power sector.
Danijel Levičar is the Business Director of GEN energija d.o.o.
The opinions expressed by the author do not necessarily reflect the opinions of Energetika.NET.
This article is available also in Slovene.