Europe has found a coronavirus electricity demand floor

LONDON (ICIS)–Electricity consumption has levelled out in Germany, France and Italy, after falling for several weeks due to restrictions aimed at stemming the spread of the coronavirus.

But in Great Britain and Spain, demand has continued to drop week on week in recent days, according to an ICIS model that controls for the impact of temperature across Europe’s five largest consumers of electricity.

THE MODEL

In order to establish by how much power consumption has fallen as a result of the coronavirus, ICIS used multiple regressions to find the closest statistical fit between daily averages for demand and the temperature and day of the week in each country in March between 2015-2019.

Likely due to some combination of energy efficiency measures and the economic impact of the UK’s exit from the European Union, British power demand fell in all-but-one year across the sample period, and this has continued in 2020. ICIS also included an annual measure in the GB model in order to control for this.

The models were highly statistically significant, explaining 80-91% of the variation in power demand across the five countries.

• A 1°C drop in temperature effected anywhere between a 300MW rise in demand (in Spain and Italy) and 1.9GW (in France) over the sample period, according to the model

• Demand dropped roughly 4GW on weekends or public holidays in Spain and the UK, but 6.5GW in France, 8.7GW in Italy and 11.1GW in Germany

• British demand fell by an average of around 450MW each year

RESULTS BY COUNTRY

The power market most affected by its national lockdown has unsurprisingly been Italy, as the epicentre of the outbreak in Europe and the country with the most stringent restrictions in place. Demand in Italy has dropped by one quarter or 9GW since the outbreak, according to the model.

Europe’s largest electricity consumer Germany has been the least impacted of the five countries, with demand steady at around 8% or 5GW below expectations for almost a week. The results suggest that much of Germany’s industry is still operating at close to normal, with the government aiming to follow the South Korean model of widespread testing and quarantining in order to avoid a strict national lockdown.

French power demand has at times fallen even more steeply than Italy, but levelled out sooner in percentage if not outright terms, due to a larger power sector overall. Since dropping over 20% or 13.5GW below expectations across week 13, demand has risen slightly week on week with each subsequent day, according to the model.

Demand has yet to level out in Britain or Spain. Over the past seven days, this has fallen close to 15% or 5GW below expectations in both countries according their models. The UK imposed its lockdown later than the other countries, so unless restrictions are tightened, could be expected to level out similarly in coming days. Spain tightened its lockdown restrictions from 30 March, shutting all non-essential businesses and industries.

OUTLOOK

Overall, the models provide key early baselines for demand drops across European power markets.

For instance, the close-to-maximum lockdown in place in Italy could reveal the most that demand could possibly drop in any semi-functioning European power market.

It is important to note that the relationship between power demand and price is not 1:1, instead depending on the marginal cost breakdown of each country’s fleet of power plants. But if traders had expected continuing steady demand falls in any power market they likely need to revise those expectations quickly.

That said, European energy markets are clearly highly exposed to any further tightening or closures in Europe’s industrial hub Germany.

Finally, these findings refer specifically to March in each of these countries. It is possible that the results will not project forward into the summer as cooling overtakes heating as the bigger component of electricity demand.