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COVID-19 and the Impact of Changing Power Demand

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The COVID-19 pandemic has raised a number of challenges for the U.S. energy industry. Among these is responding to changing demand. Energy demand altered significantly as states went through various stages of lock-down. Demand is now recovering but with enduring uncertainty over consumption patterns.

A key question for the industry is: How do we respond to this uncertainty and make sure our electricity grids adapt to customers’ changing energy needs?

At the start of the pandemic, U.S. power demand fell by an average of 11%. As people adjusted their lifestyles and home-working became more common, residential demand rose but by less than the reductions in industrial and commercial demand. Demand levels have generally been returning in the last month, but most predictions still suggest aggregate U.S. demand will be down by up to 5% over the entire year.

The picture at a local and state level is more mixed. In mid-April, peak demand had fallen by as much as 30% in Manhattan. However, this was against a much greater reduction in building occupancy of 96%, highlighting a shift in demand. While it also experienced initial reductions, demand in Texas bounced back more quickly than in many other states, while Florida and California—areas with high shares of residential customers—saw steady or even rising demand as home-working and home-schooling increased.

Following a recent period of warmer weather, demand has risen again and with it has come suggestions a warm summer could result in a 25% increase in power bills. While it is tempting to position this as a direct consequence of the pandemic, doing so would be a mistake. There were similar patterns in Texas in both 2018 and 2019 following periods of warmer weather.

During prolonged periods of hotter or colder weather, electricity consumption will rise. So, too, will the cost to customers because more electricity has to be purchased in wholesale markets to meet higher electricity demand. This has nothing to do with COVID-19 or with the costs of operating the grid. What the pandemic has done is increase uncertainty around demand patterns. While the immediate impact may be short-term, it may also have an enduring effect as individual needs and expectations have shifted.

This raises an issue for electric utilities. It means a greater focus on the grid edge and ensuring it provides the levels of reliability customers’ now require, including during periods of prolonged warmer weather. Outages will always happen, but by continuing to modernize their systems, utilities can minimize the interruptions customers experience. As the use of electricity changes, utilities and regulators will need rate cases that provide investment to address evolving customer needs.

Demand patterns have been changing. Increasing levels of electrification, the impact of warmer summers, and the increased focus on decarbonization are all having an impact and are posing challenges for electric utilities and regulators. These are issues occurring across the globe. Consequently, the requirements of electricity grids, including the levels of reliability and resilience they provide, have been unfolding and expanding. COVID-19 has simply accelerated the pace of these changes.

I’d like to learn your thoughts on these issues in the Comments below.

Expert

Chris McCarthy

Publication Date

July 15, 2020