Special Report: The continued impact of the pandemic on energy use
It’s been eight months since the coronavirus made its way to the United States – the first case was reported in Snohomish County, WA, on Jan. 20, 2020. Since then, it has spread to every corner of the nation, with nearly 4 million cases reported, resulting in more than 140,000 deaths. Worldwide, there have been nearly 15 million cases and nearly 700,000 deaths.
Today, the health of the nation remains at risk, with periodic openings of businesses and activities followed by rapid re-closures as viral outbreaks pop up in new hot spots. According to leading virologists, this is still part of a “first wave” event; a second wave may not arrive until winter at the earliest. And a vaccine remains hopeful, not a certainty.
In response to the outbreak and dramatic shifts in consumer activity and government directives, American businesses were forced to either change their way of delivering products and services or completely shut down until a new operating model could be found, impacting their employees and their bottom lines.
At the same time, these disruptions caused breaks in supply chains, slowdowns (if not cessation) in production, a market collapse on Wall Street and Main Street, and an explosion of unemployment not witnessed since the Great Depression.
For nearly five months, Americans have coped with state-mandated shelter-in-place orders, limits in buying options and either working from home or not working at all – and adopting new ways of living-in-place.
These actions have created additional challenges for businesses that deliver products and services, and for employers trying to keep their workers safe. And they also have impacted the consumption of energy – both in quantity and end use.
U.S. Energy Consumption and Our Clients
As we reported in detail in our last issue, the impact of the pandemic on energy use was caused by two factors: a drop in overall use because of the economic slowdown, and a shift in use from business to residential customers. The economic impact on energy use is easy to grasp: as businesses closed, they didn’t need to turn on the lights.
And the second factor is a blend of two events: As people sheltered-in-place, their use of energy in the home went up; instead of going out to dinner, they cooked in the kitchen and then binged on streaming services. At the same time, workers able to take advantage of work-from-home options – as well as those laid off from shuttered businesses – drove up residential energy consumption by being home and using home office equipment all day.
The result has been a continued shift in load accompanied by an overall reduction in use, as confirmed by our own operations managers. “The industrial sector has seen a significant reduction in use,” one manager reported. “Residential, of course, has seen an increase because of (our state’s) strict say-at-home order.” Overall, he said, “customers are using less, and closed buildings and businesses have affected overall consumption, especially schools, offices, restaurants and bars.”
One byproduct of the pandemic has been a shift by some U.S. automakers from car and truck production to manufacturing ventilators. “This,” one Midwest manager said, “helped maintain certain consumption levels.”
According to the weekly Small Business Pulse Survey conducted by the U.S. Census Bureau, utilities report that they are the least affected by the pandemic, whereas arts, entertainment, recreation, hotels and food services are the most affected. Overall, nearly 83% of those surveyed said the pandemic was having a “moderate” or “large” negative effect on their businesses. The latest survey was from the week of June 21-June 27, and published on July 2.
For DNV GL’s utility clients, the “new normal” use of energy has impacted their approach to energy efficiency in general and on some specific programs. In several programs, savings goals already have been reduced dramatically for the current program year – from 10% to 22% – while other clients are asking for forecast updates from our teams before they take any action. One client, whose program runs on a fiscal year, already has extended its program year by three months.
In nearly every program, our managers have had to accelerate their forecasting to deal with constantly moving goalposts: the closing, opening, and re-closing of retail businesses; lagging re-employment, which continues to keep workers home; uncertainty about the opening of schools, colleges and universities; and remote or limited government operations.
“Forecasting is a continual process for us,” said one of our operations manager. “We’re now doing weekly reforecasting for the client” – an action shared by at least two other managers. Another manager said he’s already been asked to develop a new forecast well ahead of schedule, “so I expect our goals to change as a result.” A third manager said he was “still working toward our original goal, but due to lost time (because of the pandemic), we may still achieve our financial goals, but it will be with a reduced savings goal.”
Energy Use and The Weather
The arrival of summer hasn’t slowed the spread of the coronavirus; in fact, people gathering along beaches and newly opened restaurants and bars have caused infection spikes in numerous southern and western states. But what weather has done is affect the use of energy across the country – further adding to the shift in usage from business to residential customers who continue to shelter-in-place. In addition, those businesses that have opened have further added to overall usage increases.
For Joseph Lopes, this means the impact of COVID-19 must now be adjusted for weather. Lopes is a Principal Consultant in our Energy Insights group and performs detailed analyses on the energy sector. Whereas his initial research into the crisis four months ago for the New York City (NYC) epicenter confirmed a significant drop in both peak demand and hourly use, that overall demand has cycled up because of the hot weather – and related air conditioning use – both in New York and across the country.
In Figure 1, the lines on the graph represent periods: light green (bottom) = two weeks ending May 3; dark blue = two weeks ending May 17; dark green = two weeks ending May 31; and red = two weeks ending June 14. This progression illustrates how energy use grew as the weather got warmer, with late afternoon load increasing more than other hours.
Figure 1: May-June Load Increases for New York City
Figure 2 shows the two-week totals of cooling degree days on a 65-degree base (CDD65) for NYC, showing mismatches between 2019 and 2020 for the 5/29 and 6/12 two-week periods, which makes a direct comparison between 2019 and 2020 loads invalid unless you adjust for weather.
Figure 2: Cooling Degree Days
Before that, the CDDs were alike or zero, so no weather-adjustment was required. The previous reporting through April did not need weather-adjustment for New York City because electric heating load is insignificant in NYC and there was no cooling yet. The other factor to take into consideration is that schools were closed throughout the March -June period for 2020, but only closed after mid-June in 2019.
Global Energy Consumption & COVID-19
The anecdotal reports from our frontline program personnel is supported by a July 1 energy forecast issued by Sverre Alvik and Mark Irvine of our Group Technology and Research division in Oslo, Norway. Alvik is Program Director of the Energy Transition Research Program and Irvine is Communications Manager of the DNV GL Group. Each year, the team produces an Energy Transition Outlook report – based on DNV GL’s independent model of the world energy system to 2050 – undertaken to aid analysts and decision makers across many industries in developing strategic options.
Their latest forecast is predicated on the International Monetary Fund’s scenario, in which world GDP will shrink 6% this year. Longer term, the pandemic will reduce world GDP in 2050 by 9%, when compared to pre-pandemic forecasts. Key to the forecast is that even with slower growth, “by mid-century the world economy will still be twice its size today,” but energy demand will not grow. Instead, by 2050, “it will be about the same as it is today, in spite of a larger population and world economy.”
This will be due to “significant improvements in energy intensity,” but it also will be due to the lingering effects of the COVID-19 pandemic. “Our modelling now shows that the pandemic will reduce energy demand through to 2050 by 8%, resulting in energy demand in 2050 at almost exactly the level it was in 2018.
Of course, not all of this reduction will be due to the lingering effects of the pandemic; rather, “improvements in energy intensity will remain the most important factor in reducing energy demand in the coming decades.” The contraction due to the pandemic “comes on top of this.” Any lasting changes linked to the pandemic will be “mainly behavioral in nature” and will include the impact on the transportation sector, “especially aviation, but also on less office work and changed commuting habits, which will result in transport energy use never again reaching 2019 levels.”
Finally, “demand for manufactured goods globally will need almost four years to recover to 2019 levels, and the energy-intensive iron and steel industry, impacted by lower demand for new office space, may never reach its pre-pandemic heights.”
Figure 3: Impact on demand following a lockdown
These forecasts were echoed in a mid-May World Economic Forum article based that summarized the International Energy Agency (IEA)’s Global Energy Review 2020 report that said “the global energy market is experiencing its biggest shock in 70 years… dwarfing the impact of the 2008 financial crisis.” Based on analysis of 100 days of data, the IEA projects that global energy use in 2020 will fall by 6% in what it calls a “historic shock to the entire energy world.” That is “the equivalent of losing the entire energy demand of India, the world’s third largest energy consumer.”
Energy analysts say that demand in the global electricity market has “resembled that of a prolonged Sunday” (Figure 3), with the pattern of energy use on weekdays more like that normally seen on weekends. They add that a gradual easing of lockdowns will not produce an immediate rebound in demand as economic activity will remain depressed. An IEA analysis of data for 30 countries through mid-April showed that the level of energy demand is driven by the length and severity of lockdowns imposed. Where a full lockdown was in force, energy demand dropped by a quarter, while partial lockdowns produced an average 18% drop.
Further underscoring the shift in consumption from business to residential usage, in its June 30 Electric Power Monthly report, the EIA said that April residential electricity sales in the United States “increased 8% compared with April 2019.”
“(But) at the same time, the commercial and industrial sectors saw decreases of 11% and 9%, respectively.” The report went on to say that “U.S. residential electricity sales have never been this high in April, (that) commercial electricity sales in April were the lowest April value since April 2003, and industrial sales were the lowest since April 1987.” Across all sectors, the EIA reported, “April U.S. electricity sales declined 4% compared with last April, largely as a result of measures to reduce the spread of COVID-19.”
From an overall economic standpoint, the pandemic is definitely creating a national contraction: The Business Roundtable’s second quarter CEO Economic Outlook Survey released in late June reported a 38.4-point decline in its index, which is a composite of CEO plans for capital spending and hiring and expectations for sales over the next six months. The quarterly index of 34.3 was the lowest reading since Q2 2009, although it remains above the record low of -5.0 reached in Q1 2009 (as the country was climbing out of the Great Recession).
According to the Business Roundtable, the 34.3 index signals that an economic contraction is underway, which, the organization says, is consistent with the National Bureau of Economic Research’s recent determination that the U.S. economy has entered a recession. It reflects the disruptions to business caused by the COVID-19 virus and the global pandemic, and shows the effects of business and factory shutdowns, especially in March and April.
In addition, the U.S. Census’ weekly Small Business Pulse Survey for the last week of June reported that nearly 83% of America’s small businesses have felt a moderate to large negative impact from the coronavirus, while less than 5% felt any kind of positive impact. DNV GL analysts track this and other data to help our clients make informed decisions on when it may be “OK to return to work as normal” for such things as site work that requires face-to-face meetings.
A Silver Lining?
As sobering as these reports and forecasts are, there may be a silver lining buried in the data: the dramatic drop in energy consumption has led to a record decline in carbon emissions (Figure 4).
Figure 4: Global CO2 emissions since 1900
However, our Energy Transition Research Program experts caution that any long-term decline in emissions won’t be “significantly accelerated by the pandemic.”
Even with peak emissions “behind us, and flat energy demand through to 2050,” DNV GL’s Alvik and Irvine forecast that the decline “is still nowhere near fast enough to deliver the Paris ambition of keeping global warming well below 2°C above pre-industrial levels.” To reach 1.5-degree target, the world would need to repeat the decline we’re experiencing in 2020 “every year from now on.”
“To put this in perspective,” our experts write, “the COVID-19 impact on energy demand only buys humanity another year of ‘allowable’ emissions before the 1.5°C target is exhausted (in 2029) and a couple of years before the 2°C warming carbon budget is exhausted (in the year 2050, Figure 5). Besides, Alvik and Irvine wrote, emissions have been declining in the first half of this year “for the wrong reasons.”
The pandemic is “exacting a heavy and tragic toll on lives and livelihoods, increasing poverty and hunger and reducing growth prospects for those that need it most.” Their hope is for a “more just and sound energy transition” that doesn’t cause the harm and disruption associated with the pandemic.
Figure 5: CO2 emissions with and without COVID-19 impact
In September, the team will release its 2020 Energy Transition Outlook (ETO), which will explore technology solutions that can help “to close the gap between our forecast global warming outcome and the Paris ambitions.” The ETO will in particular look at energy-related behavioral change, and explore where and how COVID-19 “may permanently change our habits.”
By mid-July, Americans were still waiting to see if Congress would either extend some portion of existing stimulus benefits to small businesses and unemployed workers – or would approve an entirely new package of support. As it stood, one part of the original Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27 – the provision that provided an additional $600 benefit to unemployed workers – expires July 31. If no extension is provided or no new stimulus package approved, the ripple effect of the loss of this benefit could be enormous: defaults on rents and mortgages (leading to a rise in homelessness) come Aug. 1, followed by landlord defaults and an inability to pay other bills (such as utility payments) or even put food on the table.
Four months ago, we wrote that “the current situation suggests that if the crisis is over by summer, we will see a return to normal (energy) usage and demand as activity levels approach normal levels.” But, we warned, if the crisis continues beyond that:
- Many households and businesses will not be able to pay their bills, ultimately resulting in permanent load loss – not to mention the negative impact to utility revenue.
- Alternative behaviors and ways of doing business may become the norm, further impacting decisions concerning facility and equipment investments.
- Utilities may need to provide relief regarding residential household utility bills, particularly for income qualified households.
- Commissions will consider these impacts on annual energy savings targets and goals, and the ability of utilities to schedule program launch dates.
- Utility and energy service provider decisions regarding outstanding RFPs for service may result in extensions of existing services until the coast clears and impacts are fully understood.
- It may hasten the decline of brick-and-mortar operations, meaning permanently lost electric loads.
- Home energy usage will rise as education, home-based offices, and more widespread internet usage become the norm.
- System and distribution loads may shift, especially on weekdays, to a more residential-like profile, shifting the timing and location of distribution expansion plans.
- Transactions between utilities and their customers will significantly change to a more online interactive basis with in-person communications limited to on-site energy-related service or product delivery events.
Four months later, nearly every one of these possibilities are either proving true – or are on the verge of becoming a reality.
What Utilities Can Do
DNV GL program managers and teams continue to work with our clients to stay on top of developments, crafting messages and actions that will help their customers stay safe while still pursuing long-term energy-savings goals. At the same time, we are working with our clients to ensure the proper “safe” messages are being sent to our teams, contractors and customers. In general, we continue to recommend that our utility clients:
- Articulate and quantify the impact of the pandemic on your EE program goals to help state regulators better understand the implications on service providers and their customers.
- Maintain open lines of communication with residential customers concerning their increased energy use, along with recommendations on how to mitigate this increase through controls and EE measures.
- Continue to develop and roll out remote services and products that can help meet customer needs in new and innovative ways.
- Work with our teams to plan for continued reductions in C&I energy use and a rise in residential use as businesses remain closed (or re-close) and employees continue working from home.
- Work with our teams to plan for a long-term shift in energy use as businesses move to permanent remote worker status, forever reducing office building energy use.
- Work with our teams to plan for a likewise reduction in energy use by government and education, especially as schools, colleges and universities ramp up to offer on-line coursework.
- Work with our teams to help health care facilities and first responder operations deal with their unique requirements.
These are just a few considerations as we anticipate a “new normal” surrounding this pandemic; a “new normal” that will continue to have many unforeseen consequences on customers, utilities and their energy services programs. Our teams of professionals stand ready to assist our utility partners in remaining an essential service for their customers.
Craig Farrand is an award-winning journalist with more than 45 years’ experience in print media and who joined DNV GL in 2012 as a marketing and communications specialist.