Southern Europe power demand surging but could fall back

LONDON (ICIS)–Electricity consumption in Spain and Italy has recovered close to normal seasonal levels, according to ICIS models that control for temperature and calendar effects.

This may not sustain though into the autumn, and with coronavirus cases rising once more, the recovery could be even shorter lived.

JULY SURGE

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 July 2015-2019.

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 indicated that demand in both Spain and Italy has risen significantly in recent weeks.

Italy reached within 1.4% of its expected power use between 24-30 July, while Spain slightly exceeded it, the first time this has happened in any of the five countries since 10-16 March. As recently as June, demand in Italy and Spain remained closer to 10% below expected, the models showed.

Italy reopened its borders to the rest of Europe on 3 June, but a seasonal rise in demand failed to materialise through much of the month.

Most European borders reopened on 15 June, with Spain joining them a week later. It was only from the subsequent weekend of 27-28 June that demand surged in the southern nations, reaching a new plateau that has broadly held throughout July.

That demand rose so sharply in two of Europe’s traditional tourist destinations simultaneously is likely not a coincidence. The lag following the major 15-21 June reopening period might simply represent tourists taking time to arrange work absences, transport, and accommodation before departing.

Either way, people travelling to hotter countries where cooling appliances are more prevalent has helped to raise total demand across the five countries. In July, this looks set to reach around 4% below expected, compared to 8.2% across June.

BEARISH OUTLOOK?

One key factor to watch in coming weeks is whether factories take summer breaks as normal. Traditionally these shut for weeks over late July and August, with maintenance or upgrades carried out and workers decamping to seaside resorts.

This year though, factories have suffered lost revenue after idling from March to halt the spread of the pandemic. With workers already taking extensive, albeit forced, breaks, management and unions could opt to remain open, possibly bringing August power demand above normal levels.

Longer term though, a rise in cooling appliance use is a temporary factor supported by pent-up tourist demand that would revert anyway from the autumn.

A surge in new coronavirus cases in Spain and more recently France could end the recovery even sooner. The UK has imposed a two-week quarantine on people returning from Spain, and Germany and France have advised tourists to avoid the most-affected regions.

Finally, Germany was the least-affected country earlier in the year, but has barely recovered since.

Its export-oriented economy has suffered amid the pandemic recession, while it is also losing tourists to coastal areas. As Europe’s economic hub, Germany becomes the continent’s largest power market during summer months.

Lagging demand therefore meant that Germany accounted for 3.8GW of the combined 6.9GW of missing power demand across the five countries over the past seven days. Even if demand rises further, Germany will likely still pull the five countries’ average below zero.

THE MODELS

ICIS made only minor changes compared to models fit to March-June data.

French power demand rose after schools broke up for the summer, which takes place each year in early July. This is the reverse of the relationship during breaks happening earlier in the year.

ICIS already found the same effect in June in Italy and Spain, controlling for this with the separate summer variable, and so added this into the French July model too.

ICIS found that German summer holidays – which are shorter than those in other countries – had no relationship with electricity demand, and so these were not included in its school variable.

UK school holidays had the same negative relationship with demand no matter the time of year.

The discrepancy has a clear north-south divide on the continental scale.

It may come from efficiency losses, as children return home and start to run cooling appliances in the warmer countries.

The effect was smaller in France than Italy or Spain, with the summer variable just missing out on the 99% confidence interval in the French model. Every other variable across the five models was statistically significant with 99% confidence.

Later in July, electricity demand started to drop dramatically in France, Germany and Britain. This is likely related to internal and external travel for holidays and factories shutting over the summer.

ICIS used travel data and traffic warnings to add a numerical variable called exodus that rose from 0-2 or 3 over successive Saturdays in late July. The variable was not needed in the Spain or Italy models, where tourist arrivals may offset any such effect in July.

The addition of July data and the variable changes increased the explanatory power of four of the five models compared to June. These explained between 82-97% of the variation in power demand across the sample.