Biggest power demand plunge since Great Depression
Mark Chediak, Chris Martin and Rachel Morison
The global plunge in electricity demand will drag on long after nations lift stay-at-home orders, leading to the biggest annual drop since the Great Depression and fundamentally reshaping power markets.
As economies struggle to recover, worldwide electricity consumption will decline 5 percent in 2020, the most in more than eight decades, according to the International Energy Agency. In the US last week, government analysts projected the nation’s biggest drop on record. In Europe, analysts say a full recovery could take years. In South Africa, Eskom has warned of heavy revenue losses due to a decline in demand.
The prolonged slowdown will increase economic pressure on older, uneconomic power plants — especially those that burn coal — and help speed the transition toward cleaner and cheaper wind and solar. It will also contribute to the biggest annual decline in greenhouse gasses from energy ever recorded.
“This unprecedented drop in demand is foreshadowing the grid of the future,” said Steve Cicala, an economics professor at the University of Chicago. The world is “getting an early look at what high penetrations of renewables will do.”
Part of the reason electricity consumption will not immediately bounce back when lockdowns end is that power demand largely mirrors economic activity. So generating plants won’t need to run at full tilt again until employment completely rebounds and factories operate at the same rate as before the virus.
Even then, some sectors could lag for years. Demand from office buildings, for example, could be permanently depressed as companies allow people to continue working from home. Lower demand is pitting generators against each other in a fight to produce the cheapest power possible.
Wind and solar farms have an upper hand in many regions because they don’t need to buy fuel. Natural gas, which is trading near historic lows, remains competitive. Coal power, which is more expensive, is shouldering the majority of the cuts as generators scale back.