Goulding sees potential for drastic permanent demand destruction in the US due to COVID

BOSTON, MA, September 23, 2020 – AJ Goulding, President of London Economics International LLC (“LEI”), presented on “COVID-19 related demand destruction and its implications for utilities and IPPs” in the US at the Bank of America’s 2020 Future of Power conference.

Employing LEI’s Coronavirus Load Reduction Impact Model, Goulding presented two potential outlooks for long-term demand changes: a moderate case and a high case. Utilizing a number of key variables (namely: an increase in the number of office employees working from home; an increase in office space to accommodate physical distancing; available retail space; and changes in hotel operations and facilities to allow for social distancing), LEI’s model assessed the combined impact of these drivers for insight into what energy demand in the short and long term could look like.

The anticipated load reduction in the moderate impact case is equivalent to 1.5% of 2019 load, which is contrasted by a 4.2% reduction in the high case. This equates to a reduction of 58.3 TWh (the equivalent of 11.4 GW of capacity at a 65% capacity factor) for the moderate impact case and 159.8 TWh (the equivalent of 28.1 GW of capacity at a 65% capacity factor) for the high case. “These combined changes in the moderate impact case are comparable in terms of magnitude to the ‘missing load’ following the Great Recession,” Goulding noted. “The changes we are likely to see in the high impact case are much more dramatic given that the 2019 new capacity in the US was 23.6 GW, meaning that the capacity decline in the high case actually exceeds the total amount of new build. This is a striking finding,” Goulding remarked.  

LEI’s model shows that the residential demand would increase in both cases (as compared to pre-COVID-19 numbers), with a more significant increase in the high case as more office employees work from home. The load from office buildings and retail stores will see a much more drastic decrease in the high case in response to the increase in staff working from home and the retail space per capita plummeting. Similarly, the load from large hotels would decrease in the high case due to decreased use of facilities and amenities to allow for social distancing, while in the moderate case there is the possibility for minimal decrease.

Goulding cautions that current forecasts may be underestimating the degree of permanent demand destruction brought about by COVID-19, stating that it’s unlikely the full impact will be realized before leases expire. He also pointed out that the degree of demand destruction will vary regionally.

“Not surprisingly, the areas with highest population density will be hardest hit in terms of demand destruction, with California and New York seeing the most dramatic changes,” Goulding observed. “While the pandemic uniquely demonstrated the limits of forecasting, it also highlights the importance of robust scenario analysis.”

The Bank of America’s Annual (Texas) Power Conference was held virtually from September 22-23, 2020, with a focus on what impacts COVID-19 has had – and continues to have – on power markets.

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AJ Goulding is President of London Economics International LLC, specializing in evolving electricity and natural gas markets in both emerging markets and OECD countries. He has over twenty years of experience in evolving electricity and natural gas markets; within North America he has been articulate in describing market relationships between wholesale power marketers, merchant plants, aggregators, DERs, and the existing investor owned utilities.