COVID-19: The impact on the energy and utilities sector in Ireland

11 May, 2020

The societal and economic effect of COVID-19 has disrupted supply chains and stifled demand in the energy and utilities sector.

In Ireland, electricity consumption is down and the market for transport fuel has shrunk with movement restricted. Reduced demand has brought its own technical challenges. System operators need to manage voltage and consider the implications for forecast algorithms.

Security of supply, a familiar theme in the energy and resources sector, has much wider relevance in a world living with COVID-19. More than ever, it is important to work with the Government and regulators to consider the implications for energy affordability and sustainability.

A photograph of three electrical pylons, in perspective, against a clear blue sky.

How can energy companies manage the priorities?

Energy and utilities companies put in place business continuity measures and prioritised critical operations when the coronavirus pandemic began. While many immediate challenges have been addressed, those continuity plans are unlikely to fully address the fast-moving variables associated with COVID-19. The social interruption and operational disruption associated with such a global health emergency is considerable. Protecting your people and your assets is key to ensuring business continuity as the market response evolves.

The utility industry relies on critical workers to protect energy security, in networks and power generation. This involves a high proportion of remote field-based engineers and technicians, as well as customer-facing call centre operations. Front-line employees may have concerns about COVID-19 exposure and transmission. For those who can work from home, remote work could increase security and infrastructure risks for customers and utilities providers.

While many energy and utilities companies have separate teams of staff to keep sites operational, maintaining business continuity during the current crisis should consider the health and safety issues around minimal staff on site at operational assets. Given the need to keep grid stability during times of volatile demand and supply, networks need to ensure that they can operate locked down control rooms and isolated engineering staff where possible.

Energy and utilities companies need to ensure that their employees have the necessary equipment, tools, working practices, access rights and technology so they can work flexibly offsite, especially with the need to minimise contact amid business and community disruptions.

As we move towards a new normal, many in the sector will also be re-evaluating their supply chain resilience. Visibility of upcoming maintenance requirements for essential assets such as power plants and network hubs, and required materials can help in managing the effective oversight of third-party suppliers and particularly any risk of exposure to components originating from significantly affected countries.

At the customer level, managing the working capital and liquidity impact of delayed and default bill payments will be key. In Ireland, utilities providers, government and the regulator are committed to ensuring that customers are protected through this crisis, bringing new responsibilities to the energy and utilities sector. Measures already being enacted by utilities providers include suspending disconnections, increasing the level of emergency credit available on prepaid meters and increasing flexibility around bill payment dates and debt repayment schedules. While face-to-face interaction has been limited by social distancing, energy and utilities companies who’ve built digitally assisted distribution and sales capabilities are still able to engage with customers and service their needs. However, utilities providers are dependent on large call centre operations to perform critical functions, such as sales and customer service. Uncertainty associated with the current crisis, and increased home working in the customer base is forcing a spike in volume through call centres, testing their ability to adjust at scale and companies’ ability to communicate effectively during this crisis, especially with vulnerable customers.

In this new environment, which features remote working, a depleted workforce and increased engagement from customers through online channels, vulnerability of energy and utilities companies to cyberthreats is heightened. Managing cyber-risk should be a key pillar of the crisis management response to COVID-19 for the sector.

As well as implementing COVID-19 risk mitigation strategies, companies need to assess their scope and appetite to employ traditional downturn levers, such as cash conservation and reductions in capital expenditure.

Regulated utilities are likely incurring various increases in costs (bad debt, technology, etc.) with some offset in decreased costs (e.g. travel, training). Utilities may seek recovery of some of these costs through their regulator in the future. The implications of current hedging positions for companies in the energy and utilities sector also need to be evaluated. Future hedging, procurement and risk mitigation strategies will need to be based on effective scenario and demand curve data analysis.

The uncertainty associated with COVID-19, in combination with our changing political landscape, will lead to a re-prioritisation of capital projects in the energy and utilities sector. Falling oil prices will also have implications for investment in renewable energy assets and schemes.

The operational, workforce and supply chain disruptions which are a feature of current ways of working will trigger financial reporting implications in current and future reporting periods, particularly around revenue recognition, impairment and accounting or disclosure requirements.

As part of their response to COVID-19, companies may have made significant changes to policies, procedures and controls which could impact the design and effectiveness of their internal controls or SOX programmes. Internal audit plans will need to be reassessed to address emerging risks such as:

  • Crisis management
  • Remote working
  • Alternate control performance
  • Regulation
  • Cybersecurity
  • Rapid cost reduction

to ensure that companies in the energy and utilities sector can remain effective as they respond to and plan for the impact of COVID-19 on their business going forward.

Key actions for energy and utilities companies

Employers should consider a comprehensive plan of action to protect people and productivity. Five considerations are likely top of mind:

Protect critical functions and workforce safety

Assess which obligations can be de-prioritised to protect ongoing critical operations. Identify business critical staff required to provide essential functions, where they need to be and the required measures at these sites to ensure employee wellbeing and safety, including effective isolation and increased monitoring.

Manage cyberthreats of remote working

Prioritise cyber-safe remote technology capabilities to transition workers to remote work while maintaining productivity. Ensure robust controls to protect customers engaging via online channels to exchange potentially sensitive information and reinforce vigilance among the workforce for spotting opportunistic threats.

Secure your supply chain

Reassess your supply chain to uncover weak links, ensure that suppliers affected by the disruption have contingency plans in place to meet demand, and evaluate alternative supply options where required.

Proactively reach out customers

Identify customers most likely to be affected by COVID-19, determine how best to support them (for example, by providing flexible payment options), and develop proactive communication plans to keep them informed.

Consider financial and reporting implications

Reassess capex plans to ensure they still align with corporate goals in light of the crisis. Develop the processes, controls, and support to facilitate potential future rate recovery from regulators.

Evaluate financial reporting requirements and audit impact. Re-evaluate enterprise risks and consider impact on internal control frameworks or SOX programmes, including redirecting Internal Audit’s risk and controls expertise to priority areas.

We are here to help you

As events continue to unfold, we know that the challenges you face are mounting. There’s no doubt that the weeks and months ahead are going to be challenging and the priority now is ensuring your business can ride out the impact. We are ready to help you as you face the future. Contact us today.

Contact us

Kim McClenaghan

Partner, PwC Ireland (Republic of)

Ger O'Mahoney

Partner, PwC Ireland (Republic of)

John O'Connor

Director, PwC Ireland (Republic of)

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