No More Carefree Summer Days for Generators — Electricity Demand Weakness to Resurface With Mild Fall Weather
Summer-time air conditioning demand masked underlying electricity demand weakness associated with COVID-19. As temperatures begin to moderate, loads will once again soften.
Over the summer, electric suppliers experienced a short reprieve from the earlier demand losses associated with COVID-19. The gradual lift in state-wide restrictions generally enabled the resumption of business while still keeping a vast number of people working from home — a sort of best case scenario for electricity producers, if you will. Moreover, under normal conditions, some amount of residential space cooling typically shifts over to the commercial side of the ledger. Indeed, with more employees returning to offices, there is simply less electricity used at home. This energy demand transfer between sectors will ultimately occur — perhaps as soon as this fall — limiting some opportunities for further demand recovery.
Yet, the key factor that enabled electricity demand to recover to pre-pandemic levels was the unusually warm weather. Just how warm? Dr. Todd Crawford, chief meteorologist and data scientist at The Weather Company, recently weighed in, noting that “in the U.S., we saw the third-highest cooling demand (as expressed by population-weighted cooling degree days) on record, with a final total of 1,033. This was just short of 2011 (1,037) and 2016 (1,040).” For the meteorological summer (June through August), the average temperature for the contiguous U.S. was 73.6 °F or 2.2 degrees above the average. By comparison, the summer of 2019 was not quite as warm with the average temperature registering 72.4°F or 1.0°F above average.
To understand how this unseasonably warm weather influenced demand, we assessed the actual load data reported by U.S. independent system operators for the period of June through August — accounting for about two-thirds of U.S. electricity demand. What we found was demand was in near perfect alignment with year-ago levels. While demand in June actually surpassed last year by a 1.5% margin, year-on-year growth tapered to just 0.3% in July and then dipped to -0.6% in August. Under normal circumstances with such oppressive heat, we would have anticipated a 2 to 2.5% bump in growth. Instead, the system operator data suggests load was roughly flat, registering an anemic 0.4% uptick in demand this summer.
What does this development signify for the balance of 2020? Our sense is that summer-time air conditioning demand likely masked the underlying weakness caused by the pandemic. As temperatures begin to moderate later this month, loads will once again soften.
All told, recent signs of recovery appear short-lived, with demand returning to more normal pre-pandemic levels likely measured in years rather than months. After a decade of glacial growth, the prospect of a sustained drag on demand will ultimately necessitate a re-evaluation of what the “new normal” should look like for supply.
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