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Energy Price Forecast 2021: Covid-19, Brexit and much more

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Matthew Olney's picture
Content Manager Dyball Associates

Content Manager for Dyball Associates who writes and creates articles on the latest Energy News, top tips, infographics and videos.

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Since our last energy price forecast, the world has been afflicted with a global pandemic that has had serious impacts on all areas of the energy industry and the global economy. Here is our energy price forecast for 2021.

The impacts of Covid-19

Covid 19

There’s no denying that the Covid-19 pandemic will continue to be the major issue of 2021. The UK government and energy regulator Ofgem has announced a swathe of measures to help the most vulnerable of consumers and support for energy suppliers. 

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Energy suppliers will be under intense scrutiny from the regulator and consumers alike over how they have handled the pandemic. Those companies that have provided support and maintained a good customer service throughout are likely to benefit some positive publicity and potentially gain new consumers as a result.

The adoption of new technology and ensuring that their current systems are capable of handling the issues raised by the lockdown is also a major challenge that will likely continue into 2021. The possibility of extensions to the current lockdown or the introduction of new lockdowns in the event of a virus flare-up will need to be considered.

On the energy price front, several industry experts are forecasting that wholesale energy prices will continue to be under pressure due to the ongoing uncertainty and fall in demand created by the pandemic.

Some experts think there could be an 8% decline in overall energy demand up to 2050 as the structural changes caused by Covid-19 impact consumption.

More changes to the energy mix

windmills and solar panels

The record lows in energy usage and price drops recorded during the lockdowns are also likely to further impact the electricity generation mix.

In the energy market, suppliers that can offer cheaper prices can often sell more of it. Currently, the cheapest options for electricity generation with the lowest operational costs are wind and solar energy.

In 2020, the UK broke new records for the number of days it went without firing up coal power stations as well as smashed new records for the contribution wind energy made to the energy mix.

In 2021, we can expect more investment into wind power in the UK with Prime Minister Boris Johnson pledging to make the country the ‘Saudi Arabia’ of wind.

At the height of the first lockdown, the energy mix shifted to renewable sources, a trend which is set to continue. However, a push for economic recovery following the devastating economic impacts of the pandemic could see nations turn back to fossil fuels to power an economic recovery.

The impact of the Ofgem Price Cap

OFGEM logo

It was announced in October 2020 that the energy price cap has been extended until the end of 2021 in an attempt to help consumers struggling with the impact of the Coronavirus pay their energy bills.

The impacts of the pandemic have been severe with many consumers struggling to pay their energy bills or requesting payment holidays from their energy supplier.

Energy suppliers have raised concerns over the rising cases of bad debt and with the extended furlough scheme due to end in March the unemployment rate is likely to rise yet again.

The price cap will remain at £1,042 throughout 2021, an £84 drop from the previous price cap of £1,126.

New Ofgem rules

Ofgem introduced new rules for energy suppliers in the latter months of 2020 and they will be enforced in 2021.

The new rules require energy suppliers to offer emergency credit to their customers who are struggling to top up their prepayment meters. Suppliers must also offer customers who are in debt with a realistic and sustainable repayment plan.

The cost of implementing such rules could be passed onto consumers in higher energy bills but this is likely to be frowned upon by the energy regulator.

The impact of Brexit on energy prices

Brexit

Brexit’s impact on energy prices is dependent on whether a trade deal is agreed between the UK and the European Union.

In the event of a deal, we can expect to see little disruption in energy prices as the UK will most likely agree to stick to the current EU structures and rules on energy.

A No-Deal could create some short term volatility in energy prices and is sure to create some political headaches for the government but in the long run, it will be down to the UK energy sector to ensure that prices and supply are not disrupted.

The flow of gas and electricity from the continent is unlikely to be impacted too much due to the pipelines being a privately owned system that delivers to bot EU members and non EU member nations.

Geopolitics and global conflicts

soldiers on beach

Oil prices are set to remain below pre Covid-19 levels throughout 2021 as the recovery from the pandemic has been worse than expected.

Concerns over more waves of the virus and regular lockdowns in affected countries have put a dampener on the commodities price. Economists had been expecting a strong economic rally after the first lockdown, but the second wave and potential for new waves have seen the recovery come in below forecasts.

On the geopolitical sides of things, the big point of tension is the growing animosity between China and much of the world. Throughout 2020 there were several border clashes between Chinese and Indian forces and tensions over Taiwan have escalated.

The result of the US election will be definitively settled by 2021 so it will depend on who takes the White House on what the policy towards China will be. Joe Biden is likely to ease tensions with the Chinese Communist Party whereas Donald Trump will continue his policy of trying to keep Chinese influence contained.  

The Chinese issue is likely to be the dominant focus geopolitically throughout 2021.

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Matt Chester's picture
Matt Chester on Nov 13, 2020

The flow of gas and electricity from the continent is unlikely to be impacted too much due to the pipelines being a privately owned system that delivers to bot EU members and non EU member nations.

In the pre-Brexit times, was there ever discussion about building up international transmission infrastructure, finding ways to get British wind power via massive HVDC to other European grids? Or was that never on the table because of geography?

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