POWER August 2020 - 34

BUSINESS
The Growing Strain of Power
Sector Supply Chain Disruptions
Power sector supply chains, hard hit by the COVID-19 pandemic, are feeling the
double whammy of uncertainty posed by a broad U.S. executive order.
Sonal Patel
A
s was clear at the Federal Energy
Regulatory Commission's (FERC's)
July two-day virtual technical conference
to assess the pandemic's impact
on the energy industry, COVID-19
has introduced multiple uncertainties for
the power sector. Summarized by the
North American Electric Reliability Corp.
(NERC), the most crucial risks posed by
what it called a " people " event, focus on
maintaining critical staff needed to operate
and maintain the bulk power system
(BPS) and mitigating supply chain issues.
The latter, as the Edison Electric Institute's
Philip D. Moeller noted, has been vastly
compounded by financial troubles posed
by " decreased demand, lower commodity
prices, reduced access to credit and
reduced market liquidity, increased delinquencies,
insolvent customers/unrecoverable
defaults, lower and/or more volatile
stock prices, construction delays, and lags
in rate recovery. "
As a number of participants at the conference
pointed out, supply chain issues
haven't yet cropped up in any substantial
way, mainly owing to rigorous planning
by industry for emergencies affecting
the BPS. Pandemic planning, which is
pervasive across the industry, has also
prompted a majority of companies to review
their supply chain needs, and many
participants remain ready to support
mutual aid requests. Still, the industry
appears to be bracing for long-term implications,
and NERC itself has warned that
constraints involving staffing and material
shortages could ramp up risks related
to the completion of major construction
and maintenance projects. These risks
include potential equipment and fuel
supply chain disruptions.
Those risks are real and have affected
global sub-sectors in varying ways,
warned the International Energy Agency
(IEA) in a series of reports surveying the
power sector's global sub-sectors over
the first few months of the pandemic.
Much of the initial pain came from the
sharp slowdown in manufacturing owing
to stringent lockdowns to contain infec34
1.
How supply chains will fare, owing to a projected fall in energy investment, is uncertain.
In its May 2020-released World Energy Investment report, the International Energy Agency
(IEA) suggested that fuel supply investments have been hit hardest in 2020 while utility-scale
renewable power has been more resilient-but that the pandemic has " touched every part of
the energy sector. " Courtesy: IEA
tions. Early production slowdowns in
China, which accounts for 70% of global
photovoltaic (PV) module manufacturing,
posed logistical delays, though these
have since been resolved. Perhaps harder
hit was the wind sector, which saw
disruptions from lockdowns in countries
that harbor major manufacturing hubs,
such as in China, Italy, and Spain. At the
end of March, the Global Wind Energy
Council said its forecast of continued
growth across the next five years-more
than 355 GW of additions-would " undoubtedly
be impacted by the ongoing
COVID-19 pandemic, due to disruptions
to global supply chains and project execution
in 2020. "
The IEA warned that challenges remain
for the industry. " Before the crisis,
equipment manufacturers faced financial
pressures, with tighter margins stemming
in part from competitive bidding
and lower renewables prices, " it said.
Given new uncertainties, some governments
and utilities are delaying procurement,
which means reduced order
books and cash flow for suppliers. While
it's too soon to assess a long-term impact,
some analysts suggest that in the
immediate future, several entities may
shift priorities and business models,
looking into repowering existing assets,
for example, and adopting more flexible
payment terms.
Owing to financial hits, some analysts
www.powermag.com
also project that consolidation of smaller
manufacturers
with weaker
balance
sheets may accelerate. Cost-cutting may
be inevitable all over the power supply
chain (Figure 1), as the IEA pointed out:
" This may also raise questions over research
and development budgets, " which
could boost the fragility of clean energy
innovation, " for which there has been
good spending progress in recent years. "
Supply Chain Risks Examined
COVID-19 has undoubtedly compounded
an already complex business and operating
backdrop in which power companies
have been functioning as a critical industry
to keep the lights on 24-7. But even before
the pandemic prompted close scrutiny of
existing supply chains in the context of
geopolitical risk, the industry was grappling
with the growing threats posed by an
ever-expanding pool of suppliers.
Boston Consulting Group (BCG), a
global firm that has said many of its clients
rank among the 500 largest corporations,
suggested the increasing reliance
on more suppliers is rooted in a " sweeping
range of demands " on utilities, which
requires a " breadth of expertise, skills,
and work capacity necessary to meet
them. " It added: " Indeed, for many utilities,
contracted labor now accounts for
more than half of their total labor hours
and for spending that is equivalent to as
much as half of the utility's revenues:
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POWER August 2020

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