The coronavirus pandemic has brought economic activity in many states to an abrupt halt. During the spring, with most states in lockdown and many businesses and industrial facilities closed for several months, electricity consumption dropped significantly during the first few months of the pandemic. An article appearing in the New York Times in early April shows this steep downward trend throughout the United States, and its authors argue that electricity usage—which can reflect changes in economic activity more quickly than other metrics—can be a good early indicator of a recession.
On a regional level, too, this trend of reduced electricity consumption is obvious. Figure 1 shows the average hourly load for weekdays (excluding Memorial Day) in May 2020 compared to May 2019 for the Independent System Operator in New England (ISO-NE), which serves Maine, Vermont, New Hampshire, Massachusetts, Rhode Island, and Connecticut. In May 2020, all six New England states had stay-at-home orders or advisories in place; thus, this reduction in electricity usage is reflective of many businesses being shut down, including office buildings, restaurants, and other public spaces, which would normally use electricity during the weekdays.
A comparison for the same month across years is useful for evaluating changes in electricity demand, because it roughly controls for factors like weather, which influences electricity usage due to needs for heating and cooling. On average, May 2020 and May 2019 are quite similar, with hourly temperatures in Worcester, Massachusetts (a rough midpoint in the region), averaging in the mid-50s within two degrees of each other, which makes this comparison reasonable (data download: NOAA Local Climatological Data). May 2020 had slightly more warm days (seven days with temperatures over 75°F) than May 2019, which would normally suggest that demand for electricity would be slightly higher in 2020 due to higher demand for air conditioning. But the energy demand in 2020 is actually shown to be less than in 2019, despite the slightly hotter temperatures, suggesting that the reduction in demand due to the pandemic may be even greater than the figure alone makes clear.
As Figure 1 shows, average hourly load is much lower for weekdays in May 2020 compared to weekdays in May 2019, with no obvious changes to the shape of the load curve itself, which has similar mid-morning and late-afternoon peaks in both years. On average, electricity consumption was down about 6 percent per hour in May 2020 relative to May 2019, with more significant reductions during the midday peak hours (average of about 10 percent).
From an environmental standpoint, a reduction in electricity usage is beneficial because power plants run less to meet electricity demand, thus eliminating some harmful air pollutants and carbon emissions that would have otherwise been emitted. In addition to consuming less electricity, the electricity that New Englanders have been using over the past few months is likely cleaner than it would have been if demand stayed closer to 2019 levels. This is because intermittent renewables cannot be dispatched like fossil fuel resources; instead, power from renewable resources is absorbed into the grid whenever it’s generated, unless generation is curtailed. Thus, all else equal, reduced demand for electricity results in an increase in the percentage of electricity demand met using renewable resources.
A comparison of electricity generation on an average weekday in New England during May 2020 and May 2019 (Figure 2) shows that solar and wind renewables have generated more electricity on an absolute basis in 2020 (likely due to increasingly stringent Renewable Portfolio Standard requirements among states in the past year, which have led to a growing number of renewables on the grid), and on a percentage basis relative to total electricity generation compared to 2019 (likely attributable to both growing renewables on the grid and lower demand for electricity in 2020).
By contrast, fossil fuel generation is much lower on an absolute basis in 2020 relative to 2019 (Figure 2). Several other factors can influence the generation mix, including hydroelectric generation (which varies from year to year) and retirements and investments in generation resources, such as the recent retirement of the Pilgrim Nuclear Power Station in Plymouth, Massachusetts. However, given that the reduction in fossil fuel generation mirrors the overall pattern of reduction in demand shown in Figure 1, it is reasonable to assume that generation from fossil fuels would likely have been higher in May 2020 if the pandemic had not occurred.
More information on changes to the generation fleet and changes in weather patterns is needed to fully account for differences between this year and last year. However, given the data shown here, it is likely that renewables are contributing more to electricity generation during periods of lower demand. Between May 2019 and May 2020, the share of renewables in overall electricity generation in ISO-NE increased by an average of 65 percent in each hour of the typical workday, while the absolute average hourly renewables generation in megawatt-hours increased by only 47 percent over the same time period. At least some of that proportional increase is likely due to the reduced overall demand, which has caused renewables to make up a larger portion of power generation than they otherwise would.
In the short run, this change in the level and composition of generation could be environmentally beneficial, because generation from solar and wind can offset fossil fuel generation that would otherwise be needed to meet demand (though the percentage of solar and wind in the system is still quite small). However, if this pattern persists (or reemerges in the fall, depending on how the pandemic impacts the opening of businesses), there could be more medium-term consequences of a higher percentage of renewables this year based on lower-than-average loads.
The reason is that all of the New England states are subject to a Renewable Portfolio Standard (RPS), under which renewables generate renewable energy credits (RECs) and sell them to electricity retailers that must include a certain percentage of renewables in their electricity sales. RECs can be traded throughout all of New England, and most of these states allow RECs to be banked for more than one year (in some cases, up to three years), meaning that a REC generated this year can be used for compliance a few years in the future.
This recent dip in electricity consumption could potentially impact the market for RECs because the RPS is based on a percentage of sales. Because renewables have contributed more to electricity generation during the pandemic than they would normally, these states will be able to meet their RPS targets more easily, which raises the supply of RECs relative to what is needed for compliance and causes the price to fall. Since RECs can be banked, the excess supply of RECs from this year could carry over to next year, causing lower REC prices to persist for some time. Since RECs provide incentives for renewable energy investment, low prices could potentially discourage investment, at least temporarily.
However, it is unclear if this COVID-induced electricity demand shock will persist in the months to come. First, the New England states have lifted some stay-at-home restrictions, which has resulted in the reopening of many businesses and restaurants and thus increases in electricity demand too. Additionally, with many employees continuing to work from home during the summer months, electricity demand could actually increase relative to non-pandemic times if many more homes use air conditioning rather than just office buildings, as Steve Cicala suggests on a recent Resources Radio episode.
In fact, the data for June 2020 versus June 2019 already suggest that this predicted increase in demand may be the case (Figure 3). Average temperatures for Worcester, Massachusetts (a roughly central point in ISO-NE), were about the same in June 2019 and June 2020 (65 degrees and 66 degrees, respectively) with a few more warmer days in June 2020 (19 days with temperatures over 75°F versus 13 days over 75°F in June 2019). Thus, the observed slight increase in June 2020 demand is probably at least partly due to an increased demand for air conditioning. Since many office buildings are still closed down (which would normally accompany a drop in demand), it is possible that 2020 demand is so similar (and slightly higher than the demand in 2019) because while working from home, people are cooling their homes more than they would during non-pandemic times.
If this trend persists, and electricity demand does in fact rise over the summer this year, then demand for fossil fuel generation could rise—and with it, rising emissions. Such a trend could lead renewables to comprise a smaller portion of total electricity generation, which would have the opposite effect as described earlier and reduce the excess supply of RECs relative to what it would have been without the pandemic, raising REC prices and thus raising the returns on renewables investment. Thus, the impact of the pandemic on near-term incentives for renewables investment in New England will depend partly on how electricity demand changes over the course of this year in response.
The impacts of the pandemic on the electricity sector over the medium and long term are still quite uncertain and depend on many factors, including whether demand dips again in the fall when temperatures are cooler, as well as if electricity demand shifts permanently after the pandemic is over. But, in the short term, it seems that the pandemic may have slightly reduced the environmental impact of electricity generation during the spring months through reduced overall consumption and a larger contribution of renewable resources, both of which have contributed to lower fossil fuel generation than expected during this time of year. This pattern is even more likely to be true in areas of the country with higher penetrations of renewables. The summer months, however, could reveal a different picture—and possibly come with higher environmental hazards relative to non-COVID times.
Notably, even if some short-term benefits of the pandemic exist in the form of lower environmental impacts of electricity generation, the long-term impacts on advancements in renewables in the electricity sector are uncertain. If demand ends up being lower on average for the entire year, then near-term incentives for renewables investment could be reduced due to low REC prices. Additionally, a prolonged recession resulting from the pandemic could deter investment in renewables for many months, which would more than offset the short-term environmental benefits of the pandemic due to reduced electricity consumption, as suggested in a recent study.
Ultimately, the future of renewables depends on how quickly the economy recovers from this recession. In the meantime, data on electricity usage can offer insights about how the pandemic appears to have affected renewables and influenced the environmental impact of electricity generation.