EU power CEOs see slow recovery from low prices, demand slump

European power prices and demand could take up to five years to recover to pre-coronavirus pandemic lockdown levels, according to UK power utility SSE's CEO Alistair Phillips-Davies.

A mild, wet and windy winter, combined with demand drops from the pandemic lockdowns, has crashed European power prices, making utilities cautious about their future spending.

"I'd be amazed if we got out of this [economic slump] in two years. If it's in less than five I think people will have done well," Phillips-Davies told a Eurelectric webinar on May 25, which also featured Enel CEO Francesco Starace and Vattenfall CEO Magnus Hall.

SSE was expecting "probably" a 10% fall in demand across the summer, and a 3-5% fall across next winter.

Meanwhile high winds plus a public holiday on May 25 in the UK had seen weekend power prices crash to minus GBP29/MWh on May 23 and minus GBP49/MWh on May 24, Phillips-Davies said.

These were "really big negative prices," and balancing the system was becoming more of an issue, with wind farms having to be curtailed, he said.

UK grid operator National Grid said on May 15 that it could cost an extra GBP500 million ($610 million) to balance the system this summer in order to cope with low demand.

The current challenging market conditions and low demand outlook was likely to make utilities look to cut spending and conserve cash, Phillips-Davies said.

Long-term troubles

Swedish power utility Vattenfall's CEO Magnus Hall agreed that the current conditions were impacting longer term business decisions.

Sweden also had negative power prices over the May 23-24 weekend, and prices generally were persistently low, between Eur5-Eur10/MWh.

"Of course, nobody can build a business on anything like that [low prices]," Hall said.

Vattenfall was hedged short term and so wouldn't have to deal with the low price impacts immediately.

But if prices stayed low over the longer term, "we will be heading for significant troubles," he said.

Vattenfall pulled out of the 700-MW Dutch Hollandse Kust Noord offshore wind tender in April because of uncertainties created by the pandemic lockdowns.

"We are protecting the near-term big investments we are going to do," Hall said.

Enel keeps investing

Italy's Enel is not expecting to slow investments for 2020 to 2021, its CEO Francesco Starace told the webinar.

The lockdowns in Italy and Spain had seen power demand drop for industry and rise for households, with the net result a drop of around 10%, he said.

But demand was slowly rising again as the lockdowns were gradually and cautiously lifted, and this pattern was being repeated in other countries such as Greece and Romania.

As European countries were at different stages of the lockdown and exit cycle, "it would take some time before we come back to an equilibrium," Starace said.

Only at that point would it be possible to say what kind of investment would be needed, he said.

The European Commission's proposals for an EU economic recovery plan, expected on May 27, could have a huge impact on utilities' investment decisions.

If it included a big role for European Green Deal policies, power utilities would probably gain a big part of EU funding to speed up the energy transition away from fossil fuels to help achieve the EU's goal to be climate-neutral by 2050, he said.

The EC could propose some Eur1 trillion of EU funding across all sectors, according to a leaked draft of the recovery plan.

The leaked draft includes a proposed EU tender scheme for 15 GW of renewables over the next two years, plus billions of euros to support clean hydrogen, including green hydrogen made from renewable power.

It also includes funding to support supply and demand for electric vehicles, and investing in power grids.

The proposals in the draft plan will have to be debated and approved by EU national governments and the European Parliament, and so may change substantially.

Permitting, market design

EU policy-makers could also take non-financial measures to improve investment conditions and promote low-carbon electrification, Hall said.

These include speeding up permitting for more power transmission lines, and ensuring the EU Emissions Trading System delivers a carbon price that helps drive out coal and gas-fired power generation in favor of renewables.

Power prices might become more volatile in the short term, Hall said. Longer term, Europe might need a new pricing model that could value both flexible and intermittent power sources effectively.

"I don't see immediately that adding more renewables is pushing prices down," he said.

Phillips-Davies agreed that policy decisions could give markets certainty about long-term income options.

He thought policy-makers could do more on transport, offshore wind, market design and heating.

For example, bringing forward bans on petrol and diesel cars could boost electric vehicle take up.

Policy-makers should also look at how to ensure investments in adding more renewables did not kill existing renewables' business models.

"It's not all about the latest, newest renewables. It's also about being able to repower and keep existing renewables going when existing support schemes end," Phillips-Davies said.

Working from home

The massive shift to people working from home because of the pandemic would help keep power demand depressed in the next year or so, he said.

"We're looking at reopening some of our offices potentially from June 1, but only with 20-25% capacity," he said.

"That depressed demand will depress prices, which is why we have to work with policy-makers to look at what the long-term opportunities are to give people certainty to bring investment in," Phillips-Davies said.