24 Aug Operating in a Global Pandemic
By Aileen Currier
As the economic impacts of COVID-19 spread throughout the energy industry, falling demand, tightening liquidity, and expanding regulatory safeguards for end-use customers are pushing some retail energy providers into insolvency. Energy providers, however, are uniquely positioned to make sense of how the pandemic is impacting customers. By harnessing the power of real-time usage data for revised forecasting techniques and segmentation, energy providers can adapt to shifting load patterns and mitigate further pandemic-induced risks.
What we see is different – but how?
According to a recent report by the Energy Information Administration (EIA), this summer is projected to yield the lowest electricity demand in 11 years, with commercial and industrial loads expected to decline by 12% and 9%, respectively, since the summer of 2019.
Source: Energy Information Administration, Short Term Energy Outlook, August 2020
But not all customers will be impacted to the same degree. Grocery and convenience stores have yielded fewer energy demand changes since the onset of the pandemic, while retail, restaurants, fitness centers, and other entertainment service providers have seen more dramatic reductions in load. As more schools go virtual and fewer universities open for the fall – demand in this segment is also likely to fall dramatically.
Compounding these challenges is the erosion in the value of once-reliable demand curves for the residential market. Typical early morning peak load has softened and shifted from 7 – 9 am to 9 – 10 am or later in some areas, and many ISO/RTOs are seeing a reduction ranging from 6% to 12% in total residential peak load demand.
COVID has also upended expectations for long-term load growth as companies shift to remote work. According to S&P Global, 80% of surveyed organizations have expanded their work-from-home policies since the onset of the pandemic, 47% of organizations expect to permanently reduce their onsite footprint, and 25% of those expect an onsite reduction of at least 20%. The increasing uncertainty in commercial energy demand has already forced a 30% decline in long-term corporate PPAs in the first seven months of 2020 compared to the same time period in 2019, according to a recent study by BloombergNEF.
Understanding how each individual market segment will be impacted by temporary COVID related restrictions and how remote work trends will continue into the foreseeable future will be critical for retailers to structure effective hedges against sales volatility over the short and long-term.
Positioning for The New Future
Though it is still too early to understand COVID’s full impact on the energy industry, recent increases in commercial demand indicate that demand is likely to recover – but under a new paradigm. Energy providers must ready themselves to see continued shifts in residential demand, resulting in a higher concentration of weather-sensitive residential customers. Increasing economic uncertainty, declines in demand, and late payments from customers will require retailers to refocus on commercial segments less impacted by the pandemic and revise demand forecasts by leveraging targeted usage data.
Working with technology partners to access and analyze real-time customer usage data is critical for retailers to reduce their risk exposure and understand how to quickly meet the evolving needs of customers as COVID restrictions continue to play out. Commercial suppliers should access real-time usage data to increase scenario and sub-segmentation planning and forecasting, rethink their products sold, and further take into consideration the uniqueness of their commercial customers’ business when evaluating product offerings and associated risk.
As more people transition to working from home, product offerings that focus on energy efficiency and intelligent energy usage appealing to the new residential demand curve can provide immediate relief for end-use customers and new opportunities for retailers. Whether temporary or not, COVID’s impact on the energy market cannot be ignored. Retail energy providers that adapt to these changing circumstances by continuously evaluating usage data to create immediate and lasting value for their customers stand the best chance of succeeding over the long-term.
Aileen Currier is Director, Market Strategy at EC Infosystems, Inc.