There is no doubt that the Covid-19 pandemic has upended the world economy. The loss of millions of lives, countless businesses, and trillions of dollars (and other currencies) has had profound effects.
And it is still ongoing, despite the best efforts of drug manufacturers, public health experts, and others.
One continuing impact of Covid has been to create economic uncertainty, especially for those companies involved in power supply and generation. The interlinked nature of the global economy, together with its recent boom-and-bust nature, has made investing and future planning difficult.
Power suppliers rely on predictability when calculating the Levelized Cost of Electricity, which is a metric used to work out the cost of electricity production over the lifetime of an energy-producing asset. The LCOE varies depending on the asset, but includes things like funding costs, operation and maintenance, land and permits, and fuel (if required) for the 20–35-year life of a typical power plant.
Here are three ways Covid has affected how LCOE is calculated by energy suppliers.
1. The impact of inflation
Borrowing costs are one of the core considerations for investors when deciding whether to build power generation assets. Inflation has hit the global economy hard. In the United States alone, government data shows that it has risen by 9.1% in the year to June 2022. And its effects are unevenly distributed depending on what is being measured. The cost of fuel is especially problematic for power supply companies. For example, while gasoline prices rose 11.2%, electricity has risen 13.7%. While this may help the power suppliers’ income, for those companies with assets that use fuel, like gas-fired power stations, inflation is a double-whammy, affecting both borrowing costs and operational costs because of the need to buy fuel.
2. Operation and maintenance
During the pandemic we learned that the global economy is vulnerable to supply chain failures. Those impacts are still being felt, especially in the technology field. A key factor in power generation is the use of technology, especially with renewables, such as wind turbines and solar. Many parts are built in China and other far-away countries, which are especially vulnerable to strict Covid lockdowns and government policies which favor domestic sales over exports.
Uncertainty during the early days of the pandemic created staffing issues for power suppliers. While many workers were deemed “essential” and found themselves required to come to work, others were not, and adapted to working from home. And, for various reasons which cumulatively became known as “the great resignation”, many highly skilled workers retired or switched jobs instead of returning to work in the energy sector.
Add to this the fact that the CDC reports that 7.5% of Americans are suffering “long COVID” symptoms, which are “defined as symptoms lasting three or more months after first contracting the virus, and that they didn’t have prior to their COVID-19 infection.”
All these manpower factors create difficulties for those calculating LCOE over the long term, especially when pay inflation is added to the mix.
Knowing all this, the effects of the pandemic are likely to impact power generators and customers for years to come.