Reduced Utility Demand Due to Pandemic

Utility

In a recent report, “Impact of COVID-19 on the US Energy Industry,” the Brattle Group noted the demand for electricity has been declining as a result of the pandemic and is likely to remain reduced for several more months.

In fact, power loads were already reduced between 3% and 11% around the nation by the end of March, according to the major independent service operators,

“COVID-19 has quickly led to dramatic changes in the economy and energy markets,” said the report. “While the impacts of the virus are expected to peak in mid-April, health experts project the impacts from the virus will persist for many months, until either we develop widely available treatments or herd immunity proliferates.”

The report added that most economists expect very sharp near-term impacts to GDP with recovery occurring by late 2020 or early 2021. The duration and severity of economic impacts will depend on how long the pandemic persists, as well as how readily consumers and businesses can rebound from the current impacts of social distancing.

“The pandemic has already had obvious and devastating effects on healthcare, education, business activity, and employment,” said the report. “Observers … are projecting even more acute impacts in the near term, potentially resulting in lasting damage to the U.S. economy.”

The report added that, as of the end of March 2020, there has only been a dampening or, more likely, lagged visible effect of COVID-19 on utility industry market conditions, partly owing to the essentiality of the service.

“However, this lagged effect cannot be counted on to last indefinitely or even far into the near term,” added the report.

Specifically:

  • Demand reductions from social distancing and likely ongoing consumer anxieties will create revenue shortfalls for most utilities that may not be recovered by existing decoupling.
  • COVID-19-induced reductions in locational marginal pricings, which represent the cost to buy and sell power at different locations within wholesale electricity markets, and energy demand from the shuttered economy will undermine revenues for most generation, especially baseload generation (coal, nuclear and some renewables).
  • While many states have ambitious targets for distributed energy resource adoption, COVID-19 could make these a lower priority, as well as less economical for awhile.
  • Finally, potential electrification growth, such as from electric vehicle adoption, may be delayed as a result of reduced fossil fuel prices and reduced consumer wealth.

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