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Covid-19 Implications for Energy: Interview with Dr Admir Softic

20th May 2020

ViewsCovid-19

Dr Admir Softic currently serves as Assistant Minister, Sector of Energy at the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina  

In your opinion, what will be the top three long-term implications (over 12 months) and structural changes in the energy sector in your region/country as a result of the Covid-19 pandemic?

There are several possible long-term implications for the energy sector, and three in particular that  should be given extra consideration: financial liquidity of the energy sector (decreased revenue due to non-payment of the bills), the possible drop in energy consumption and delayed energy investments (projects). Most vulnerable are the projects implemented by SMEs and households, mainly related to energy efficiency and small renewable energy.

What are the lessons that you have learned at this stage of the crisis in your country/region? Any crisis management tips you would like to share with our global community?

Generally speaking we have learned that energy systems can be vulnerable in crises such as this one, if we don’t apply some measures, such as protecting qualified staff who are part of the energy system. Certainly we have faced many issues, but good preparation in these situations is crucial. We must also expand the attention given to assessments of the critical issues that are or could constitute a threat to the operation of energy systems.

The Covid-19 pandemic taught us that every crisis must be approached very seriously. It is extremely important that appropriate and capable staff are in key positions so that the opinion of experts is respected by the population. Important decisions should not be allowed to be made by people who are not sufficiently expert or lack sufficient information about the problem.

Do you expect society, the economy and energy systems to return to business-as-usual quickly or will there be a ‘new normal’ after  the crisis is over? If the latter, what will a ‘new normal’ look like?

It is difficult to predict what will happen after all of these challenges, but we are sure that this crisis will have an impact on energy systems in the future.  Energy companies will need to find a balance between protecting customers and not putting the liquidity of company at unnecessary risk.

What do you expect will be the legacy of Covid-19 and the impact on climate change policies?

The legacy will probably be: encouragement of consumers and companies to introduce and switch to online payment, switch to online work what means a reduction of personal contacts, etc. In the pre-pandemic period, Bosnia and Herzegovina committed itself to following the EU climate change policy. We expect that our country will continue to follow the EU in the coming period,  unless EU policy changes and Bosnia and Herzegovina's policy remains the same.

Covid-19 in the short-term is radically altering our lifestyle. It is also significantly dropping our global carbon emissions through reduced transportation, reduced industrial output and reduced non-essential consumption. The most relevant question, really, is: what are the long-term effects? Once Covid-19 passes, society is likely to shift back to some form of normality. Private transportation will pick up and, in a worst case, could even exceed pre-Covid-19 levels if people are worried about health risks. Aviation emissions may stay low for years. Industrial production and electricity generation are likely to move back to pre-Covid-19 levels.  The clean energy projects can make it difficult to keep moving throughout the crisis. Also, a long and slow recovery, over the space of a few years, will make tracking progress on climate policy difficult.

What are the societal implications of Covid-19?

As we can see, this epidemic has already impacted society. Behaviour and habits will be completely different. The Covid-19 pandemic has shown that the future of Bosnia and Herzegovina will depend on the ability of the population to adapt to changes that will occur after the end of an emergency. In my opinion, it is extremely important to work on mapping and strengthening domestic human resources capacities. It is also important to strengthen regional economic cooperation.

Council of Ministers of Bosnia and Herzegovina adopted on 17 March 2020 Decision on activities of the BIH institutions with the aim of protecting the lives and health of employees. The decision encompasses that all work activities should continue under the extraordinary circumstances, with the possibility of working from home and a schedule of a minimum number of employees who work at the official. All business trips are postponed except the trips directly related to the implementation of measures for the protection of lives and health of the population under the extraordinary circumstances. Mandatory compliance with the measures prescribed by the competent authorities under the extraordinary circumstances is required.

The exchange of information has been intensified among all competent entities in the energy sector (ministries, regulators, regulated companies) with a view to preventing any unwanted occurrence if observed. The regulated entities are called upon to inform all competent authorities in a timely and regular manner of organisational, technological, economic and financial aspects of their work under the extraordinary circumstances.

The generating companies pay particular attention to the protection of health of their operative staff required for unimpeded functioning of the generation process in terms of organising longer shifts and the isolation of this staff from the surroundings.

Specific to energy sector, all institutions and organizations follow the same protocol.

The supply of electricity continues unimpeded. Considering some indications in the neighbourhood that this situation causes reduced electricity consumption, State Electricity Regulatory Commission produced an analysis of electricity consumption in Bosnia and Herzegovina in the first quarter of 2020 focusing on the month of March. According to the analysis, the electricity consumption in March 2020 is 1.1% higher in comparison to the electricity consumption in March 2019 if the consumption of Aluminij (production of this aluminum company was shut down on 10 July 2019), BSI (overhaul of facilities of this large industrial customer is in progress) and PHPP Čapljina (reduced operation in the pumping mode) is excluded from the data comparison. Furthermore, it may be seen that the realisation in March 2020 is 1.9% higher in relation to the value projected by the Power Balance in the Transmission Network for 2020. According to the first indications, it is shown that the electricity consumption by households is around 4% higher while the electricity consumption by other categories decreased by an approximate percent.

Disconnections of households due to unpaid bills are suspended while default interest for delayed payments is not charged.

Among the measures implemented by the authorities with the aim of protecting health of the population we would like to mention that all educational institutions are closed, movement in the evening is restricted, wearing of protective equipment is required in public places, shops are closed (except those supplying provisions and pharmacies), air travel for passengers is closed, and a two-week quarantine is compulsory for persons entering the country except for truck drivers.

What are the main positive spill-over effects of Covid -19 in your country/region, if any?

Furing this crisis, the pollution of the environment was reduced because many of the reduced or stopped operation of manufacturers and industry facilities, as well as a reduction in traffic in the cities.

The Covid-19 experience will also teach us lessons about the limitations of implementing very drastic behavioural changes in people’s everyday lives for a long period of time. Perhaps the only useful thing we can do is to seek to draw some conclusions from one crisis and then try to tackle a completely different longer-term climate crisis. All forms of direct entreaty or psychological nudge to individuals to voluntarily change their behaviour to combat climate change do not work, or at best have very limited impacts. Substantially changing behaviours requires, as a general rule, structural changes to the choice architecture in which individual consumers make decisions, such as regulations to ban certain products or activities, or large price hikes, or new infrastructure.

In your opinion, could Covid-19 be a pivot point for accelerating energy transition?

In some cases this can accelerate energy transition, but now we are witnesses that all activities regarding the energy transitions are at a standstill. In my opinion it is certain that Covid-19 will bring some changes. When it comes to the energy sector, we would say that it is difficult to single out only one driver of change, because the further development of the energy sector of Bosnia and Herzegovina requires a combination of different drivers, which can only be achieved through a coordinated and integrated approach. For developing economies such as BiH, the energy transition will certainly depend on the financial support of the international community.

In the context of energy transition, market conditions for changing energy policies and faster energy transition and achieving low carbon energy and the economy have become even more difficult, and the implementation of new energy policies even more complicated. Sudden disruptions, resulting in a decline in economic activity and a decrease in the already cheap energy from fossil sources, can greatly complicate public energy transition policies.

How can we emerge from the Covid-19 shock as a more resilient society and continue to accelerate the pace of successful energy transition?

After this crisis, society will be certainly stronger and more resilient, because if new crises come again, it will be easier to overcame, using the experience of the previous one.  What we can emphasize is that the implementation of obligations under international agreements, and above all the Energy Community Treaty, is one of the main drivers of development of the energy sector of Bosnia and Herzegovina. The development of the energy sector of Bosnia and Herzegovina so far has been largely achieved through the transposition and implementation of the EU acquis. However, the implementation of these activities, the development of our sector in line with the EU, also depends significantly on economic opportunities.

One possible twist is that oil prices might remain volatile for months, which could prompt energy majors to boost their investments in wind and solar projects that produce smaller but stable returns. Low interest rates could also help shore up the renewable energy market.

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