North American power markets are in uncharted territory.
Wood Mackenzie projects significant pullbacks in the larger North American economy and corresponding impacts to demand for power. WoodMac's current baseline view of the economy forecasts a sharp recession over the next several quarters and a strong recovery starting in 2021.
However, the path of gross domestic product may end up being worse than this baseline despite fiscal and monetary stimulus efforts. A new report from WoodMac on North American power markets includes both the baseline and a more severe scenario, with losses running through 2023.
Wood Mackenzie’s baseline view yields lower power demand and power prices across North American power markets.
How much will peak demand fall?
In ERCOT territory in Texas, WoodMac expects peak demand levels to be reduced by 4.6 gigawatts in 2020 and 2.1 gigawatts in 2021. Average prices will fall across the footprint of the independent system operator, with more extreme price erosion coming in the summer months as scarcity value is significantly reduced.
In PJM territory, peak demand levels will be reduced by nearly 9 gigawatts in 2020 and 4.7 gigawatts in 2021. This will contribute to additional oversupply in the market, as nearly 20 gigawatts of new combined-cycle generation has come online in PJM over the past several years.
Load reductions on a broad scale will also be seen in New York and New England, with New York City being the current epicenter of the crisis. Declining loads will also put downward pressure on renewable energy credit and Regional Greenhouse Gas Initiative prices in the region.
In California, the loss of demand may help to mitigate the tightening reserve outlook in the market.
In the footprint of the Western Electricity Coordinating Council, Alberta power prices will be more heavily leveraged to loss in power demand given the current level of scarcity pricing in the market.
A dynamic situation for power markets
Forecasting coronavirus impacts in North America is complicated by the inconsistent and overlapping containment policies being rolled out at the city, county, state and national levels, which are changing on a daily basis.
Across the continent, commercial, industrial and transportation electricity demand curtailment will result from the economic downturn.
Household electricity demand will rise as people shelter in place, with many working from home.
However, household electricity demand will not offset reduced business electricity demand, as residential electricity demand makes up just 40 percent of the total demand across North America. Furthermore, the weekly and hourly distribution of residential electric power consumption is different from that of commercial and industrial customers, resulting in shifted daily load profiles.
***
A new short-term outlook report on North American power markets is available from Wood Mackenzie here.
Rob Whaley and Paul Taube are principal power analysts at Wood Mackenzie.