Four Facts about Covid and U.S. Electricity Consumption
New working paper by Steve Cicala documents large changes in how Americans use electricity.
This is an important turning point for the United States. We have a long road ahead. But one of the reasons I’m optimistic about Biden-Harris is that we will once again have an administration that believes in science.
To embrace this return to science, I want to write today about a fascinating new working paper by Tufts economist Steve Cicala.
Professor Cicala has been studying the effect of Covid on electricity consumption since back in March, when the Wall Street Journal picked up his work documenting an 18% decrease in electricity consumption in Italy.
The new work, focused on the United States, is particularly compelling because it uses data that allows him to distinguish between residential, commercial, and industrial sectors. This turns out to matter a lot.
Without further ado, here are four facts he uncovers about Covid and U.S. electricity consumption.
Fact #1: Firms Are Using Less
U.S. commercial electricity consumption fell 12% during the second quarter of 2020. U.S. industrial electricity consumption fell 14% over the same period.
This makes sense. The second quarter was by some measures, the worst quarter for the U.S. economy in over 145 years!
Economic activity shrank. Schools closed. Offices closed. Factories closed. Restaurants closed. Malls closed. Even health care offices closed as patients delayed going to the dentist and other routine care. All this means less heating and cooling, less lighting, less refrigeration, less power for computers and other office equipment, less everything.
The decrease in the industrial sector is a little more surprising. My impression had been that the industrial sector had not fallen as far as commercial, but the patterns for both sectors are quite similar with the decline peaking in May and then partially rebounding by July. The paper also shows that areas with higher unemployment rates experienced larger declines in both sectors.
Fact #2: Households Are Using More
While firms are using less, households are using more. U.S. residential electricity consumption increased 10% during the second quarter of 2020. Consumption surged during March, April, and May, and then leveled off in June and July – with much less of the rebound observed on the commercial/industrial side.
This pattern makes sense, too. In Professor Cicala’s words, “people are spending an inordinate amount of time at home”. Many of us switched over to working from home almost immediately, and haven’t looked back. This means more air conditioning, more running the dishwasher, more CNN (especially last week), more Zoom, and so on.
The paper also examines the correlates of the decline. Areas in the U.S. where more people can work from home experienced larger increases. Unemployment rates, however, are almost completely uncorrelated with the increase.
Fact #3: Firms are Less Peaky
The paper next turns to a novel dataset from Texas that makes it possible to measure hourly electricity consumption by sector.
As the figure above illustrates, the biggest declines in commercial/industrial electricity consumption have occurred Monday through Friday between 9AM and 5PM.
The dashed line shows the pattern during 2019. Notice the large spikes in electricity consumption during business hours. The solid line shows the pattern during 2020. Much smaller spikes during business hours.
Fact #4: Everyday is Like Sunday
Finally, we have what I would like to nominate as the “Energy Figure of the Year”.
Again, start with the pattern for 2019, reflected by the dashed line. Prior to Covid, Texas households used a lot more electricity on Saturdays and Sundays.
Then along comes Covid, and turned every day into the weekend. Residential electricity consumption in Texas during business hours Monday-Friday is up 16%(!).
In the pattern for 2020, it isn’t easy to distinguish weekends from weekdays. If you feel like weekdays and weekends are becoming a big blur – you are not alone.
Conclusion
Researchers are increasingly thinking about electricity consumption as a real-time indicator of economic activity. This is an intriguing idea, but Professor Cicala’s new paper shows that it is important to look sector-by-sector.
While commercial and industrial consumption indeed seem to measure the strength of an economy, residential consumption has been sharply countercylical – increasing exactly when people are not at work and not at school.
These large changes in behavior are specific to the pandemic. Still, with the increased blurring of home and non-home activities we may look back on 2020 as a key turning point in how we think about these three sectors of the economy.
More broadly, Professor Cicala’s paper highlights the value of social science research. We need facts, data, and yes, science, if we are to understand the economy and craft effective policies.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
For more details see Steve Cicala, “Powering Work From Home”, October 2020, NBER Working Paper #27937.
Suggested citation: Davis, Lucas. “Four Facts about Covid and U.S. Electricity Consumption” Energy Institute Blog, UC Berkeley, November 9, 2020, https://energyathaas.wordpress.com/2020/11/09/four-facts-about-covid-and-u-s-electricity-consumption/
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Lucas Davis View All
Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Research Associate at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.
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Good blog and good article by Cicala. Thank you for the reference.
Thanks, Lucas. I was wondering about the U.S. literature on this. In many developing countries, the break from demand growth also affords an opportunity to cut back on new coal plants and take advantage of the falling costs of PV (see e.g. “COVID-19, Coal, and the Energy Transition in the Philippines”).
P.S. As already mentioned, some of us could do without the polemics. If Biden is really a healer, maybe we can get back to “reasonable patriotism,” or what Bill Clinton used to describe as civil engagement based on evidence and reason.
Given this data and comments made, the situation that California and the USA need to make big differences
rather going back to the traditional “economics” of energy. California has been through this before at the turn of the 21st Century when companies like Eron gave false data and all the energy companies needed. The solution is NOT what former USA President Trump tried to do for fossil fuels (coal, oil, natural gas) companies due to more “market” demand. Aside from Eron and other companies did then also want to do now is very important, note the problems here in CA ranging from warmer weather, fires, smog and more as never experienced before on the issues of rivers, land, travel, smog and oceans that are becoming more polluted. There is one key answer to all of this CA did and the rest of the USA need to do by replacing fossil fuels. Governor Newsom enacted a shut down for everything and everyone in CA. The skies were cleaner along with less waste. Have any of you seen pictures before and after the shutdowns around CA when you compare them with only a few days before that Governor took actions that other USA states need to do. There is more, but the pictures of before and after the shut down around CA proves that the use of fossil fuels is needs to stop as scientific verification proves. And then the need to replace the dangerous implaces with solar, wind, run-of-river and more. President Biden must enact national policies, standards, technologies and economics that will be done all over the USA and especially have USA rejoin the UN Paris Accord and other areas such as health, finances and reviewing the actions taken around the world. The energy problems around the USA and world must be taken NOW !!! Our families, children and grand children need these actions from all of us.
Dear Lucas,
Thanks for your blog and the reference to Dr. Cicala’s work.
I recently led a webinar for the Association of Energy Engineers titled : “How Changes to Time of Use (TOU) Rates are Impacting Commercial & Industrial Customers”. In particular, I focused on the California IOU’s shift in “peak period” from 12-6 pm to 4-9 pm. SCE and SDG&E have implemented this and PG&E is scheduled to do so in Q1 2021===============> for C&I customers AND Residential customers. I note Dr. Cicala’s point that “All days are Sundays” for residential customers and that peak usage for these customers is 1 PM, 5 PM, and 9 PM.
It is too early, in my view, to draw conclusions as to how California residential customers will/are responding to shifts in peak period. Throw in the “Covid Effect” and the adoption of electric vehicles and you’ve got quite a bit impacting daily residential loads.
One of my conclusions is that the timing of electricity consumption (and saving!) is very important and that in today’s world there are many factors which are at play.
Thanks again for the article!
Here’s a white paper on the impact of Covid on load in the Bay Area counties: https://www.cigre.org/article/GB/news/the_latest_news/load-profile-of-a-pandemic-california-bay-area-counties
In the interest of improving polite discourse I want to mention that statements like “an administration that believes in science” can drive away educated conservatives from your readership–and I think that this blog does such a wonderful job of educating the public that it would be a shame to miss such an important sector.
Here’s a white paper on the impact of Covid on load in the Bay Area counties: https://www.cigre.org/article/GB/news/the_latest_news/load-profile-of-a-pandemic-california-bay-area-counties
In the interest of improving polite discourse I want to mention that statements like “an administration that believes in science” can drive away educated conservatives from your readership–and I think that this blog does such a wonderful job of educating the public that it would be a shame to miss such an important sector.
Unfortunately, I have to take this study from PG&E with a grain of salt. PG&E has had significant problems measuring, analyzing and forecasting loads in a manner that inspires confidence. Here’s examples that we’ve been tracking:
1) Two important metrics of local demand are of the coincident peak (measured with the PCAF) and final load at the service transformer (FLT). Load particularly for the second parameter should be quite stable year to year for certain customer classes, and even the PCAF should track with the overall peak load. But analysis of this data since 2009 shows significant volatility that PG&E cannot adequately explain.
2) PG&E has continually forecasted rising peak loads since 2006, but generally system peaks have remained below 2009 levels. Meanwhile PG&E has forecasted flat peak loads at the circuit level over the same time. It appears that PG&E has not reconciled its distribution planning and system peak loads over the years.
3) PG&E overforecasted bundled customer loads by 7% in 2019 despite strong economic growth in the state. In other words, bundled customer loads were 7% lower than forecasted. In contrast, the CCAs were off by less than 1%. The previous largest deviation that direction was 3.2% during the Great Recession in 2009. PG&E has not offered a set explanations that apply uniquely to bundled customers–the CCA forecasts should have been off just as much if PG&E’s explanations are true. (In this case, I believe that PG&E has an internal load measuring problem.)
I’ve taken this kind of analysis one step further in a presentation I’m doing for an EUCI course.
Yes, residential sales are up, while commercial and industrial sales are down. The net is down.
BUT, because the retail sales margins, above the variable cost of power, are MUCH higher for residential sales, the net utility margins are higher. That was a surprise to me.
In addition, the cost of capital is down sharply. Utility debt costs are down about 150 basis points since the first of the year, and the cost of equity generally follows debt costs.
The bottom line is that utilities will be about as profitable as before Covid, but that level of earnings will be more attractive to investors, since the required return is lower.