What’s Ahead for Power’s Big Picture

December 19, 2020

How this year has changed pricing and demand for energy in the commercial sector, and what to expect in 2021.

Tyler Hodge, senior industry economist for the U.S. Energy Information Administration. Image courtesy of the U.S. Energy Information Administration

The latest projections from the U.S. Energy Information Administration estimate that retail sales of electricity in the commercial sector in 2020 will decline 6 percent compared to 2019.

“The electricity demand data that we’ve been seeing so far in 2020 does reflect a combination of stay-at-home orders earlier in the year, continued social distancing guidelines, and the resulting economic impacts,” according to Tyler Hodge, senior industry economist for the EIA in the Office of Energy Production & Markets Analysis.

Pandemic Impact

The COVID-19 pandemic will continue to cause changes in energy demand and supply patterns in the future. The short-term energy outlook notes that GDP fell 4.4 percent year-over-year in the first half and began rising during the third quarter. According to the report, GDP will increase 3.1 percent annually in 2021.

Hodge pointed out that weather is another significant driver of consumption and is expected to reduce commercial demand this year unevenly across the country—between 3 percent in Mountain states and 9 percent in the Mid-Atlantic region.

“During the second quarter, we noticed that commercial electricity demand was noticeably lower than expected, and this was most likely due to the temporary stay-at-home orders issued by most states,” Hodge noted. “Now that many of these restrictions have been lifted, commercial electricity demand in recent months seems to be more in line with our forecasting models that are based on changes in weather and general economic conditions. “

Commercial electricity demand in the U.S. is projected to rise 1.2 percent in 2021, mainly due to incremental improvement to economic conditions as well as “more normal” weather conditions following a very mild winter earlier this year.

In the residential sector, electricity demand is the inverse. Even with balmier weather patterns, households are consuming more electricity, as indicated by the average 4 percent increase in retail sales between April and September. “This is a result of more people spending more time at home, especially with increased teleworking,” Hodge explains. “However, this effect has been very gradually wearing off and we expect it to fade away by mid-2021 as things return to normal.”

READ ALSO: IEA’s World Energy Outlook 2020

Electricity prices in the commercial sector for 2020 are anticipated to be 0.6 percent lower—at 10.6 cents per kilowatt-hour—than the average price in 2019. Next year, that trend will reverse, with prices projected to increase 1.2 percent. Lower costs for generating electricity, particularly lower natural gas costs over the past 12 months, have benefited retail electricity prices. Although EIA expects generation fuel costs to rise in the future, these increases are passed through to retail customers with a lag of 6 to 24 months.

The supply side has not been noticeably affected by the pandemic. “New additions of renewable energy generating capacity have been maintaining a rapid pace, driven by a combination of federal tax incentives, state renewable energy goals, and lower construction costs,” Hodge noted.

This year has seen significant shifts in the mix of fuels used to generate power, with greater use of natural gas and reduced generation from coal, again driven by natural gas prices at historic lows.

Green Building Focus

According to Melissa Baker, senior vice president of LEED at USGBC, 2020 has tested the commercial real estate industry, yet the increased focus on healthy spaces and the need to adjust to unexpected changes in energy demand has reinforced the value proposition for certified green buildings.

“In anticipation of people returning to offices and other commercial spaces, EIA’s outlook forecasts an increase in electricity consumption and emissions, but green building owners and managers will be well positioned to respond,” Baker said.

Melissa Baker, senior vice president of LEED at USGBC. Image courtesy of USGBC

The upside to the industry’s recovery is that it will create an opportunity to double down on strategies that support environmental and public health. “The business of investing in a growing renewables market, energy efficiency and health-promoting strategies can lead to operational cost savings, improved occupant experience and reduced greenhouse emissions,” Baker said.

EIA anticipates that the share of electric power generation from natural gas will increase to 39 percent this year, up from 37 percent in 2019, and then fall to 34 percent in 2021 as natural gas prices increase. Coal’s share of electric power generation will fall this year to 20 percent, down from 24 percent in 2019, then return to 24 percent in 2021. Nuclear energy’s contribution will remain steady at 20 percent.

According to the report, U.S. energy-related carbon dioxide will decrease 11 percent in 2020 after a 3 percent decline last year, a direct result of lower energy consumption related to slowing economic growth. Conversely, EIA forecasts that energy-related CO2 emissions will jump 6 percent in 2021 as the economy recovers and energy use ramps up.

Production from renewable sources is expected to add to the grid significantly, if unevenly. EIA predicts 23 gigawatts of new wind capacity in 2020 and 9.5 gigawatts in 2021. Meanwhile, solar capacity will increase by 12.8 gigawatts in 2020 and by 14 gigawatts in 2021.

EIA forecasts that global consumption of petroleum and liquid fuels will average 92.4 million barrels per day for 2020, down by 8.8 million from 2019, before increasing by 5.8 million barrels per day in 2021. On an annual average basis, EIA expects U.S. crude oil production to fall from 12.2 million barrels per day in 2019 to 11.3 million in 2020 and 11.1 million in 2021.