Over the past few decades, emerging economies have become manufacturing hubs for multinationals, attracting investments from the world. While industrial growth is burgeoning in these economies, transmission losses limit the growth to an extent. Despite considerable improvements in power distribution, the scope for transmission and distribution losses remains vast. Transmission and distribution failures cause economic losses and power outages— brownout, blackout, and permanent fault. Power outages are also caused by other factors, such as weather, animals, vehicles, equipment failure, and spikes.
The growing trend of switching to renewable alternatives poses another challenge for the energy and power industry. Consumers are shifting to cleaner energy sources over fossil fuels for power generation. Environmental concerns have also seen a change in regulatory frameworks and initiatives, with governments incentivizing installing solar panels and other renewable power generation equipment.
Key players in the energy and power industry are directing their attention toward generating power through eco-friendly measures while also keeping a check on the emission rates. Smaller players, focusing on power generation through solar or wind energy, are likely to gain shares from existing key players. Despite working on low budgets, these companies have consumer conscience on their side, which could help them gain a stronger foothold. Startups such as Fervo Energy and Oxford Photovoltaics are a few examples of new entrants making considerable waves in the industry.
Whats next for this industry
Companies involved in the power and energy sector are expected to use the internet of things (IoT) and other technological innovations to stay ahead in the industry. Companies can fit smart meters, which can help gauge the needs of the consumer and their preferences. Most of the consumers in the residential, commercial, and industrial segments are seeking to use the power which is generated from a renewable energy source. The use of smart meters and advanced analytics will help companies know the trends in power consumption. In addition to this, the use of smart meters, advanced analytics, and other modern technologies will aid in building up a robust network of cyber risk management.
Though there might be a decrease in military spending as a percentage of global GDP, it has increased significantly in terms of value. Automating machines to replace humans in fighting wars has led to an increase in the number of drones and robots. This has led to a rise in the demand for power from the military. This is likely to result in a partnership between weapons manufacturers and power and energy service providers to come up with solutions for powering various military equipment. These trends might result in the adoption of strategies such as contract (custom) manufacturing, and vertical integration of power companies by weapons manufacturers or the military entering a partnership. In addition to this, there are many other developments such as the construction of smart cities, upgrading vehicles to run on electricity, all of which present significant opportunities for the companies involved in the power and energy sector.
Military spending has been significantly increasing across the globe. The use of drones and robots has led to an increase in demand for power. Companies involved in energy and power can use this to forge alliances with militaries and provide their research facilities with unhindered power supply.In addition to this, there are many other developments such as the construction of smart cities, upgrading vehicles to run on electricity, all of which present significant opportunities for the companies involved in the power and energy sector.
Our clientele from the energy and power industry comprises start-ups, leading players, as well as investors. Regulatory frameworks, technological advancements, and regional initiatives pay a vital role in the industry. All our research solutions provide a comprehensive overview of these factors and insights into regional developments, so our clients gain a better understanding of their prospects in the market.
For instance, one of our clients sought to invest in renewable energy generation. Our report on the Distributed Generation Markethelped the company gain relevant insights and data on energy generation, effectively helping it strategize its entry in potential markets. In another example, a European client sought insights into the local competition in the Clean Coal Technology Market. Our research report provided a detailed overview of the local players operating in the market and the strategies they adopted to capture value shares.
The novel coronavirus has brought international trade to a standstill, with almost all economies around the world being affected by the pandemic. International borders have been sealed, and several economies have announced partial or total lockdowns, bringing trade activities to a halt. Economies such as the U.S. and U.K. are already adopting protectionist measures, upsetting the global trade balance.
To disrupt China's growth as the leading exporter in international trade, the U.S. government issued higher import tariffs on Chinese goods, which led to the dumping of Chinese commodities in economies such as India, Canada, Mexico, and Brazil. This meant selling products at a lower profit margin by cutting down prices. On the other hand, Chinese authorities had implemented stringent mandates for controlling pollution, compelling industries to reduce their manufacturing operations to lower emissions and power supply.
The U.K. announced its separation from the European Union, ending its alliance with one of the world's most crucial trading unions. And the ongoing spat between the Organization of the Petroleum Exporting Countries (OPEC) and Russia, and increasing shale oil exports by the U.S. have caused price and demand volatility in the oil and gas sector.Rising protectionism and stringent crackdowns on pollution levels will significantly impact the energy and power sector.
These developments before the COVID-19 outbreak werealready pushing the global economy toward recession, and the pandemic further exacerbated the situation. Governments and health authorities issued orders and appeals for the worldwide population to practice social distancing, which led to the temporary shutdownof most manufacturing facilities. Thus, the power demand from these industries has plunged, leading to surplus energy.
The decrease in global manufacturing has undoubtedly translated to a decline in carbon emission, which might prompt a few relaxed authorities concerning emission guidelines in years to come. The scenario could counteract the ongoing shift to renewable energy and see more people using energy generated from conventional sources. Moreover, the decline in crude oil prices due to excess supply and low demand will eventually lead to price slashes.
Expected Decline in Energy Demand from Automotive Sector
The automotive sector has been in turmoil even before the pandemic hit the global economy. Automobile sales and production were down due to a decrease in consumer spending, and the demand for passenger vehicles was low.However, the need for commercial vehicles observedmarginal growth. This trend is likely to continue for some time even after the pandemic has been brought under control.
Source: International Organization of Motor Vehicle Manufacturers (OICA)
On the contrary, manufacturers involved in the production of commercial vehicles, such as trucks, buses, and other heavy vehicles, are likely to be among those who will have higher energy requirements. When domestic and international borders open, the demand for heavy commercial vehicles for various trading activities is projected to increase, leading to the manufacturing of commercial vehicles. On the other hand, the sales of electric vehicles (EV) and vehicles that run on alternative fuels will register a slowdown in demand owing to the lowering of oil prices, which will compel leading manufacturers to stall projects.For instance, in March 2020, Tesla announced plans to close two manufacturing plants, one of which was engaged in the manufacturing of electric vehicles (EV) and the other in supplying solar and energy storage markets.
After the pandemic has been brought under control, international borders will open up, and trading will resume; however, the general population will prefer to limit mobility or be ordered by the government. This will lead to a decrease in the demand for passenger vehicles but bring stability in the market for commercial vehicles, such as trucks, essential to transportation, and trade.
Changing End-User Demand
The pandemic has seen a downward trend in demand for consumer goods and other products. In light of this, manufacturing industries have lowered their production. Moreover, manufacturing activities are also hampered by the lack of labor as workers return to their native places, and their return remains uncertain. The prolonged lockdown will result in most of them finding an alternative occupation, which will result in a lack of skilled labor.
Even after the global lockdown is lifted, manufacturers are likely to operate at half capacities and remain cautious in manufacturing goods to prevent overproduction and keep a check on inventory costs. The careful approach among manufacturers and the lack of a skilled workforce will collectively result in a prolonged decrease in power demand from manufacturing plants.
Over the past several years, the demand for energy has shifted to non-OECD countries from OECD countries, especially China. From the perspective of supply, the Chinese economy's ability to absorb incremental power supply will mean that more supply will be there in the market, creating more significant market uncertainty and power volatility. The focus will now be placed on OPEC countries and other emerging economies for supply adjustments. Apart from bringing instability to oil demand-supply, the coronavirus pandemic is also likely to have knock-on effects over other areas in the energy sector.
Knock-on Impacts on China and the World
Source: Observatory of Economic Complexity (OEC)
The novel coronavirus has seen many health authorities promoting social distancing, compellingpeople to stay at home, andventure outdoors only in case of emergencies. Many companies have shifted to a work-from-home model, which is likely to continue as companies are expected to merely call a percentage of their employees to the office even once they resume full-fledged operations. This trend will lead to an increase in the demand for electricity from households. Moreover, the percentage of average household spending, during times like these, will increase on products such as electronic entertainment items. These trends will increase the consumption of power from the residential segment.
The battle against the pandemic has resulted in research collaborations between drug companies and research institutes, and it has also driven the healthcare sector into working round the clock. With the number of cases rising every day, most healthcare institutes have been open all day. This also includes, to some extent, the clinics which are now frequented more often by the patients who face even the most common of the illnesses as a precautionary measure. The surplus in energy supply will translate to the lowering of prices to ensure steady demand. However, as the rates of infections reduce and the world returns to normalcy, we are likely to witness price hikes.