Writing the Utility Script for Future Pandemics
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- May 13, 2020 5:19 pm GMTMay 13, 2020 2:49 pm GMT
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A significant drop in electricity demand is par for course during recessions. A shortage of money creates a spillover effect on electricity demand and prices as consumers and businesses pull back on expenses and spending.
Even by previous standards, however, the current novel coronavirus-induced recession has set new records. The IEA estimates that electricity demand across the world will decline by five percent this year. That figure is eight times the size of the same decline during the last financial crisis. New York City, where I live and one of the worst-affected places, is witnessing electricity consumption declines of between four percent to 19 percent along with a shift in demand cycles.
The long term story, that of a connected future with electric vehicles and a shift towards renewable energy, remains intact for the utility industry. But it might have to contend with volatility in the short term. The volatility is not temporary. The relatively flattened demand curve of a pandemic is expected to become a feature rather than a bug in the future.
A Flat Demand Curve May Become More Common
The peaks and troughs of electricity use will flatten out in the future due to two reasons.
First, unlike other recessions, COVID-19 is expected to return in the future. Some are suggesting other pandemics will also occur. As such, utilities will need to put in place a script to handle future recurrences and shutdowns. Of course, that script will need alterations and tweaks based on circumstance and severity but the bare bones are expected to remain the same.
Second, the pandemic has accelerated the technological transformation of society. Tech conglomerates have already extended their Work-from-Home orders to the end of this year. Others are expected to follow suit. There’s also talk that Manhattan, New York’s commercial center, is facing a reimagined future of more people working from home. Supply chains are being drastically altered and entire sectors are in danger of becoming redundant.
Reading the Future
So what do the tea leaves point to?
During the last recession, coal-fired plants shifted from steady state baseload to cycling mode in order to accommodate increasing wind power. The change in demand patterns during the current pandemic will further cut back their role and accelerate the shift towards renewable energy sources. Jason Tundermann from Level Ten energy writes that lower demand peaks will result in less use of fossil fuels, which make money off peaking cycles, and more renewable energy PPAs because the latter offer constant rates spread over a longer period of time. The use of more renewable energy may cause electricity prices to fall into negative territory suggests the Wall Street Journal (subscription required).
However, DER deployments will decline through the end of 2020, according to research firm Wood Mackenzie. The firm writes that “an already lengthy sales cycle” of approximately between one to three years for grid edge deployments will be further exacerbated by the pandemic, meaning that it will take more time for renewable energy plants to come online and Tundermann’s prediction of renewable energy power lower demand peaks will take some time to come to fruition.
Meanwhile, the pandemic has also reportedly hastened a shift from urban megalopolises, like New York City and Los Angeles, towards smaller cities, like Asheville and Oklahoma City. This transfer of population has implications for utilities. For the most part, big cities are energy-efficient, thanks to their packed density and public transit options. More people in smaller centers will probably ratchet up their power demands stretching demand for utilities. Duke Energy, the biggest utility in Asheville - an urban center in North Carolina that is growing rapidly, has already commenced with installation of battery storage to boost its capabilities.