Ceiling looms for European power demand recovery

Author: William Peck

2020/05/22

LONDON (ICIS)--Electricity consumption has risen as much as 3.4GW or 11 percentage points in Italy since the government began easing lockdown restrictions aimed at stemming the spread of the coronavirus, according to ICIS models that control for temperature and calendar effects across Europe’s largest countries.

But the lack of a recovery in less-affected Germany could indicate an imminently approaching cap, even as demand has rebounded in some other electricity markets.

While restrictions are still likely to ease further, the inability of manufacturers to ramp up to pre-crisis levels while keeping safety measures in place is likely to hold down energy demand in coming months. The effect of the hit to global supply chains and wider economies could persist for years to come.

THE MODELS

ICIS used multiple regressions to find the closest statistical fit between daily averages for electricity demand and temperature and calendar effects in Italy, France, Germany, Spain and Britain between March and May 2015-2019.

Power demand drops as temperatures get milder in the winter, but then starts to flatten and rise in the summer as heating switches off and cooling becomes a factor. While a linear fit between demand and temperature was suitable for model runs in March and April, ICIS added a second squared temperature variable called a quadratic to the May models to account for this curved relationship.

ICIS otherwise left the models unchanged compared to prior runs.

• Weekday is a binary variable set to one on working days and zero on weekends and public holidays

• A numerical variable set at 1 on 1 March and 92 on 31 May each year controlled for a seasonal drop in power demand beyond that explainable by milder temperatures, likely due to increasing output from distributed solar assets

• ICIS included an annual measure in only the British model, in order to control for falling electricity demand in the country

Adding the quadratic term and the May data improved the explanatory power of four of the five models. These explained between 82-95% of the variation in power demand across the sample.

CORONAVIRUS DEMAND IMPACT

In order to establish the impact of the coronavirus on power demand, ICIS compared data from this year to the models’ expectations based on 2015-2019, over rolling seven-day periods.

The results indicate that demand across Europe’s five largest countries has reached an average of 3.3GW or 8.8% below expectations over the past seven days.

Germany’s track-and-trace response to the coronavirus enabled more factories to remain open than across Europe’s other major economies. This also held up the country’s electricity demand, which, apart from a brief dip around Easter, has generally hovered around 4GW or 7% below expected.

The issue is that power demand has not risen since some shops reopened on 20 April, followed by a wider easing from 6 May. Protective measures remain in place, which are likely keeping factories running at a reduced capacity.

Demand had been rising in Italy and France after reopenings in early May. The recovery has faltered in both countries in recent days though, at the same 7% ceiling as in Germany.

Spain has not eased its lockdown to the same extent as France or Italy, with a two-week extension most recently granted on 19 May. With Madrid and Barcelona still in a stricter phase of lockdown, the country’s power demand is currently the most affected among the five countries.

The UK imposed the least stringent lockdown other than Germany, but this has yet to significantly ease. The small uptick in the country’s power demand in recent weeks likely indicates some factories reopening as in other countries.