As a result of the coronavirus, many organizations and many markets are experiencing challenges, ranging from a sharp drop in demand to blockages in (international) logistics. The energy market is not spared either. Supply Value expects that the unpredictable oil prices will accelerate the energy transition, that cooperation with chain partners and suppliers will be organized differently and that the localization of energy demand offers opportunities for startups.
Unpredictable oil prices accelerate energy transition
It is now old news that the demand for and the price of oil have fallen sharply in times of the corona crisis. At a certain point, money had to be invested to get rid of a barrel of oil. According to the Executive Director of the International Energy Agency, it will take more than a year or even longer for oil demand to recover to what it was before the coronavirus collapsed energy markets (AFN/Bloomberg, 2020).
If we look at the past, it appears that we are always going the wrong way with the use of energy sources. When this use leads to negative consequences, a change almost always occurs. On the one hand, this may mean that existing energy sources are handled differently or that an alternative is sought. A good example of this is how the oil crisis in 1973 forced Denmark to review its energy policy. This has made them less dependent on oil in favor of renewable energy.
But why is a falling oil price accelerating the energy transition? According to Mark Lewis, Global Head of Sustainability Research at BNP Paribas Asset Management, it now makes more sense to invest in renewable energy, especially wind and solar energy. Precisely because the risks of investing in oil are growing. It remains to be seen whether investments in oil will be recovered in the long term. In addition, society as a whole is putting more pressure on governments to accelerate the phase-out of fossil fuels. Mark Lewis also points out that it is now important to accelerate the development of energy storage, where targeted incentives from the government can speed up the process.
In conclusion, the effect of the corona crisis on the energy market will certainly have consequences. It remains to be seen how quickly the energy transition will completely break through. We can say, however, that the current fall in oil prices makes it even more difficult for oil companies to justify investments in new oil projects. In addition, the returns from investments in electricity from renewable energy are fixed for a longer period of time and are less sensitive to fluctuations, making them reliable investments.
Collaboration with chain partners and suppliers is organized differently
Times of crisis are the moment for organizations to focus on strengthening the organization. An example of this is that organizations purchase their raw materials or products elsewhere or from multiple suppliers. In practice, organizations for the production or delivery of these goods have only one or two suppliers. However, due to the corona crisis, several suppliers are unable to deliver, which leads to shortages of raw materials and stagnating production further down the chain.
The energy market is no different in this regard: especially in the field of personal protective equipment, which employees in the field are obliged to wear, a large shortage has recently arisen. This makes the dependence on that small amount of suppliers clear. To prevent a similar situation in the future, many energy companies will test their purchasing channels for these dependencies.
They will also assess and expand their supplier palette, in order to reduce dependencies on one or a few suppliers.
The coronavirus exposes the weaknesses in the collaboration between organizations and indicates which part of the energy chain is most vulnerable to external factors. By analyzing these vulnerabilities, collaboration can be intensified and organized more efficiently. This more efficient and stable collaboration has several positive effects for the future. For example, the sensitivity to future crises decreases because the previously weak points in the cooperation have been strengthened. In addition, due to the various efficiency steps in the chain, more can be produced, so that the energy supply is also guaranteed in the longer term. This in turn reduces the sensitivity to future crises and increases production.
Localization of Demand – Are Traditional Businesses Overtaken by Startups?
Nowadays, energy is generated in more places: think of solar panels and wind turbines on the roofs of commercial buildings, but also on the roofs of homes. In addition, sun and wind cannot be controlled. These two factors mean that the generation of energy is less central and less constant. In addition, in addition to the major players in this market, there are also all kinds of small and medium-sized parties that supply energy.
This has an effect on the forms of network management. According to the Rathenau Institute, balancing the electricity grid was the task of the national grid operator until recently. However, with local energy generation, regional grid operators are also given more responsibility. Data on the consumption and generation of electricity are crucial in this regard. This data enables supply-driven demand and ensures that parties with new data-driven business models help accelerate the energy transition. Digital innovations are already well underway, by both large and smaller players in the market. Large companies such as TenneT are working to stabilize the electricity network from the consumer with the help of distributed energy storage based on blockchain technology. But smaller companies are also innovating. Find there
for example, experiments are taking place with 'virtual' (read: distributed) power plants (Rathenau Institute, 2020).
We are currently seeing that the corona crisis is causing decisions regarding sustainability to be pushed forward in the short term. It is expected that after corona, more will be invested in renewable energy, so that the localization of energy supplies will develop even faster. If large parties do not follow the development fast enough, it is likely that they will be overtaken by smaller players in the market.
As outlined, the energy market is also experiencing strong consequences from the corona crisis. Where the direct consequences are threatening for established parties and the associated employment, we see several positive developments in the longer term, helped by the breaking of patterns caused by this crisis.
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