In this excerpt from his latest blog post, Werner Antweiler, Associate Professor & Chair, Strategy and Business Economics Division at UBC Sauder, discusses an analysis he performed of electricity use in our province since the start of COVID-19, and its economic implications.
COVID-19 has significantly depressed economic activity while unemployment has risen to unprecedented levels. One might think that the economic slowdown would have also translated into significantly less electricity use, but an analysis that I conducted shows that the displacement is relatively benign. The displacement between March 16 and May 14 comes to just about four per cent in British Columbia. By comparison, traffic volume was down 40 to 60 per cent on major roads in the province. What explains the small change in electricity use?
B.C.’s daily electricity demand fell from about 190 Gigawatthours [GWh] at the beginning of the economic lockdown around March 16 to about 150 GWh by early May. Yet most of this apparent decrease is entirely seasonal. As the weather is getting warmer, electricity use for home heating is dropping. Importantly, though, COVID-19 has made more people stay at home, and electricity use has shifted from workplaces to homes.
During March the changes were small, and during the first week of April demand was actually higher than expected. For most of April and May electricity demand has been down between three per cent and eight per cent.
The factor that explains the increase in demand during late March and the first week of April is the shift from workplace demand to home demand. As the weather was colder during that period, more people were heating their homes, which is less efficient than providing heat at workplaces. The higher demand reveals the change in composition of demand. As the weather was warming up during the remainder of April and early May, home heating demand was falling, and thus the full effect of the lowered economic activity has become more apparent in electricity demand as well.
A recent report from BC Hydro estimated that electricity demand in B.C. is nearly 10 per cent lower. That number is about twice as large compared to what I have estimated for the time period since the beginning of the economic lockdown around March 16. Even ignoring the time period until April 6 still reveals a lower number than what BC Hydro reported on May 11: about six per cent for the time period from April 6 through May 14. Keep in mind that BC Hydro cannot measure the load displacement—it requires an econometric model, and BC Hydro has not revealed their model.
Even though my analysis suggests that the adverse effect on BC Hydro is more benign than even BC Hydro seems to believe, this does not mean that BC Hydro is not facing significant challenges. BC Hydro has predicted that by April 2021 they may lose more than 12 per cent of total demand. This would require them to scale down operations at some of their smaller plants and even drain excess water from some of their reservoirs.
More important from a financial perspective will be decreased exports to the United States, usually a profitable operation when exports peak along with hot summers in California. The financial impact of COVID-19 will be significant, as BC Hydro was relying on a steady revenue stream to upgrade their aging transmission system. Yet, BC Hydro is also incredibly resilient. Capital planning is measured in decades, not years, and the mechanisms are in place to adjust to changed circumstances.
Overall, many electric utilities are faring remarkably well during COVID-19. BC Hydro's counterparts in other provinces that are publicly-traded companies seem to be weathering the storm. Their stock prices have largely been undented by the current crisis—especially companies such as Algonquin Power and Northland Power that have a significant green portfolio.