In February 2020, we published the first edition of our our “STPS Power Industry Analysis & Projection,” a bold new project in which we shared energy market outlooks for both North America and the entire globe. At the conclusion of this first installment, we teased a forthcoming deep dive into several power industry domains and their impacts on the evolving makeup of electricity generation. Not too long afterward, the COVID-19 pandemic did to the power generation vertical what it has done to so many other industries: flipped it upside down.
While we briefly paused this effort, we are now tackling this endeavor with renewed enthusiasm. Specially, we are focusing our analysis and projections on the post-COVID-19 energy market. But before we look there, let’s take a closer look at where we were tracking before the pandemic began.
Pre-COVID-19 outlook:
During the pre-COVID-19 era that ended in December 2019, the global economic growth and energy outlook were on solid footing as we entered 2020. The economic, demographic, and population growth would require reliable, stable, and clean electricity to maintain the rising standards of living. With modest 3% growth of global GDP, the electric energy consumption would rise in every sector with the largest growth in the residential sector. Natural gas and renewables would become the primary sources of electricity to meet the growing demand.
The US EIA reported in IEO 2019 that the global power industry was transforming at several fronts, most notably the real-time shift toward renewable energy sources (RES) and its growing influence on the economic viability of coal and nuclear power plants. The contribution of coal generation is set to decline from 40% in 2018 to 20% in 2050, with nuclear generation declining from 15% in 2018 to 10% in 2050. Low-cost natural gas generation and renewables — particularly solar, wind, and energy storage — would become the primary sources of electricity. Natural gas generation would increase from 22% in 2018 to 32% in 2050 and renewables would increase from 20% in 2018 to 50% in 2050.
During the COVID-19 pandemic:
Power generators and utilities quickly adopted a comprehensive strategy to ensure their workforce remained safe and healthy, developed plans for emergency unplanned interruptions, rescheduled spring maintenance outages to fall, and generated reliable electricity to meet the demand. All the while, lockdowns, work-from-home orders, social distancing, and all other measures to contain the spread of COVID-19 had dire effects on the global economy and energy consumption.
Summer 2020 projections:
According to the latest economic projections, the Federal Reserve is predicting a 6.5% drop in GDP in 2020. It directly translates into reduced energy consumption across all sectors. During the summer period (June through August), electricity consumption is projected to be at the lowest level since 2009 and 5% below summer 2019. Normally, weather is one of the primary factors in determining electricity demand in the residential and commercial sectors; however, during this summer other factors will affect the demand more than the temperature.
According to EIA, the majority of the expected decline in retail electricity sales occur in the commercial and industrial sectors, 12% and 9% respectively, less than the summer 2019 level. That’s because more people are working from home and following social distancing practices.
Lower energy consumption means lower generation. Since it is not economical and practical to curtail solar and wind generation, then by default, coal generation is expected to decline during the summer period. EIA expects the share of coal generation will drop from 24% in summer 2019 to 17% in summer 2020.
The share of natural gas generation will increase from 41% in summer 2019 to 44% in summer 2020. In May 2020, the Henry Hub spot price for natural gas was $1.75 per MMBTU and is projected to remain below $2.0 per MMBTU during the summer, so it makes economic sense to increase the share of natural gas generation.
The share of renewable resources – solar and wind — will increase particularly in the Midwest region and Texas largely due to new capacity addition there. The share of wind generation will increase to 7% and utility-scale solar generation will increase to 3% during the summer period.
While the power industry is preparing for the summer peak with projected lower generation and consumption, we have yet to ask and answer a few critical questions:
- What is the projected shape and duration of the economic recovery? Some models suggest that it could be a U-shaped recovery, which would take several years to return to the pre-COVID-19 era. If so, how would that impact the path to a clean energy future?
- The COVID-19 pandemic, unlike any other pandemics, has introduced the world to the new normal regarding global trade and commerce, health and safety, work from home / remote operation, social distancing, and much more. The new norms will have a significant impact on the service industry, requiring advanced technology and innovative solutions. How will that affect energy supply and demand? Will the share of energy consumption in residential and commercial sectors continue rising?
- Would there be a rise in Distributed Energy Resources (DER) to reduce the dependency on traditional centralized utilities to supply electricity?
- In the post COVID-19 era, would solar plus energy storage and energy efficiency management be a game changer?
- Natural gas generation has been and will continue to be the most economical, clean, and reliable source of electricity to maintain the resiliency of bulk power systems. However, the proponent of renewables has been quick to dismiss its critical role in mitigating risks of a successful transition to a clean energy future. So, why must it be increasingly viewed as an emergency resource or only a bridge to a clean energy future?
The COVID-19 pandemic has highlighted the indispensable role of electricity in our lives. And it has further solidified the fact that the resiliency of a bulk power system is fundamentally critical to sustain our way of life. In my view, for now and for the foreseeable future, we must assess, understand, and be realistic about the risks of transitioning to a clean energy future. We can not and must not rely on independent and regional energy strategies to integrate intermittent sources of electricity while expecting high power system stability. That is not a sensible strategy to transition to a clean and sustainable future. It is no longer a question of global warming or greenhouse gases, or extreme weather events that affect our lives. We must also consider the risk of contagious diseases that are neither regional nor immediately manageable.
As we learn, assess, and cope with the dire consequences of COVID-19 and find ways to adjust to new norms, I have been reminded of the fact that every failure or a crisis presents us with an opportunity to sensibly shape the path forward. We must avail this opportunity. We must design innovative, pragmatic, and sustainable solutions to rebuild our economy on the backs of an efficient, resilient, and sustainable energy infrastructure. We cannot afford to return to status quo and let this moment be a thing of the past.
Power generators, Utilities, Prosumers, FERC, NERC, DOE, States and Local legislators, industry experts, manufacturers, and consumers all must come together to formulate a comprehensive energy strategy to build a sustainable domestic energy economy. It is fundamental to economic growth, power system resiliency, and a successful transition to our clean energy future.
While there are still so many unknowns regarding COVID-19’s impact on the world economy, and the consequent disruptions within the global power market, the time to start scenario planning and future-proofing your operation is now. Contact us today to begin honing your post-COVID-19 strategy.
About ST Power Services:
ST Power Services has 30 years of experience in power generation. Our diverse portfolio of capabilities garners a wide customer base – private equity firms, asset management firms, and energy companies. We have successfully delivered $100MM in life cycle cost savings to gas-fired power plants.
The ST Power Services team leverages our proven techniques and years of experience in designing plant-specific pragmatic and innovative solutions to improve operating flexibility and reliability to generate clean energy at competitive prices. We have been named the Company of the Year 2020 in the power generation sector for leading the thermal power plant transformation.
