As industries in the UK begin to tentatively reopen, the energy sector is assessing the impact and the lessons from the COVID-19 lockdown.
Solar Power Portal caught up with James Armstrong, managing partner at Bluefield Partners, investment adviser to Bluefield Solar Income Fund, about operating during the pandemic, the strength of solar and low power prices.
How has the O&M team kept going throughout the lockdown?
In terms of the O&M business, the central concern was the health and safety of the team. One of the things that you have is typically those teams are set up with individuals covering certain regions and certain portfolios. The challenge in the short term is that if someone was to be self-isolating or had actually contracted the virus, geographically it is quite difficult to cover them.
So the management team of Bluefield Operations established kind of cooperation agreements with different O&M contractors so that we always had appropriate levels of cover, which was reciprocal so if there was a problem with someone else, then we would try to support them. It was a very good and collaborative approach in terms of short term concern.
The biggest practical issue for those guys has been that sometimes they're having to cover quite large areas. And typically, they would stay overnight, but hotels or bed & breakfasts are closed at the moment. So the biggest logistical challenge has been having to travel backwards and forwards, covering much bigger areas in a single day.
But I have to say overall, the team has worked incredibly effectively through this process and we continue to have a weekly COVID-19 continuity meetings with all senior managers, where we review any of the government guidelines, we review PPE, we review any changes to the working practices. And that's the kind of ongoing consequence of the situation.
Has there been any challenges caused by the lack of clarity for what exactly is a key worker?
From the start, we consulted in terms of the definition of a key critical worker, and the field service engineers who have been on the move were categorised as key workers. And so they had a letter which was written from the company director, outlining why they were defined as such. This meant that they would have some documentation for why they were traveling around in those early stages, and that was also dealt with through our legal team.
To my knowledge, no one has actually been stopped to be quite honest, but whenever someone's traveling around, they have the appropriate documentation to say that they have been categorised as a key worker.
The production of electricity is fairly critical. So it was something which we felt quite comfortable with, in terms of how we could define some of the teams.
Do you think there are any lessons from this period that you will take forward and make part of your day to day running even when we're not in a lockdown?
I think it's probably a question many managers and owners are asking themselves at the moment. The thing that has struck me is how we have a very motivated team.
I think the most impressive thing is how people adapted very, very quickly. The management team spent a lot of time working on staff welfare, working on the technology set up and making sure that we have support systems in place for people in terms of the level of isolation that people would experience, to minimise it where possible. But overwhelmingly, what has really struck the management team is how effectively people have worked from home.
It's very early days, so I don't know if this is anything that could be definitive, but I think an obvious consideration going forward is the balance of working from an office and working from home.
We’re social creatures so we will want to meet with the team, and it’s very important to be together, but whether we go back to those very office based structures five days a week, I think that's definitely under review and I think it's probably under review at lots of businesses.
Do you have any particular concerns for the strength of the solar sector going forwards as we come out of this?
I think it will be stronger than ever, and I don't say that just because I'm in the industry. I think if you look at the challenges for the UK government and the EU, the crisis will mean that there needs to be very, very significant infrastructure spending to invest our way out of this. And one of the most effective ways of doing that today is investing in decarbonisation.
There are lots of reports about the return on investment, but it fits very well with environmental agendas, which are very central to most European governments, including the UK.
We think in terms of policy that renewables, particularly storage and solar, will be very much in the centre of this and are going to play a very big part. I think in terms of government support and policy, it has a potential for being very, very well placed when governments can try and salvage and look to getting something out of what has been a very, very challenging situation.
In terms of just thinking about how there are companies that can actually work well, we're a public company and there's a bunch of other renewable funds on the London Stock Exchange, and on that basis also, we're going to look very attractive. I think there are sectors driven by income, alternative income, and dividends across the public markets are being decimated at the moment. When you look at what Bluefield can offer – and what you can see some of the other funds can offer – then we firmly think that our sector is going to look very attractive in terms of fundamental ability to deliver attractive income to the shareholders.
Do you think that this will have a significant impact on power prices going forward?
Yes, but not more so than it has done in the last six weeks. Everyone is now feeding into their valuation the most recent power forecast, and obviously there is a very, very significant drop in the short term. So over the next 12/18 months, kind of 20 – 25% drops from Q4 2019 forecast.
Now, that's two things: a supply shock, which is obviously Saudi and Russia, and a massive demand shock. And so it is unheralded in terms of what's happened.
Our view of the power markets is that the key thing is the shape of the recovery and how fast it happens, but they will they will recover. Supply and demand imbalances, the basics of the usual economics will work through, and we're seeing that even in the oil markets already.
We think a forced decarbonisation requires expenditure. Decarbonisation requires huge amounts of investment both in capacity and also in the grid, and that's something which over the next five to 10 years is likely to drive a recovery in power higher prices for generators.
But also to be quite honest, I think a very reasonable view is that decarbonisation is – putting COVID-19 aside – the most important piece of the agenda for governments; it's the most important thing for the general public. Climate change is beginning to worry people significantly and so, again, I think it's a very reasonable view to think that governments will incentivise the generation of renewables through creating some sort of price certainty.
And if that's the case, then we wouldn’t be surprised to see more positive policy measures such as CfDs coming through the UK.