IEA (2020), Electricity Market Report - December 2020, IEA, Paris https://www.iea.org/reports/electricity-market-report-december-2020, License: CC BY 4.0
2020 Global overview: The Covid-19 pandemic
The first case of Covid-19 infection was officially reported to the World Health Organization by the People’s Republic of China (hereafter, “China”) on 8 December 2019. The virus originated in Wuhan, Hubei province, and spread rapidly, with initial cases being identified as early as January in numerous countries including Japan, Korea, the United States, France, Germany and the United Kingdom.
Due to concerns about public health and fearing that the increasing number of infected citizens would overwhelm national healthcare systems, countries introduced restrictions on both the international and internal movement of people to reduce the rate of spread of the disease. The rapid spread of the virus also led many countries to introduce lockdowns and other restrictive measures.
Being under lockdown generally had wide-ranging implications. Among other impacts, commercial activities were suspended apart from shopping at supermarkets and pharmacies, and working from home, where possible, became the standard. In some countries separate shopping hours were designated for the elderly to protect the most vulnerable group from the virus. The stringency and length of measures varied from country to country and also at the subnational level. Governments followed different strategies in balancing the trade-off between containing infection and maintaining economic activity and social interaction.
The lockdown measures in response to the global pandemic led to severe economic consequences. Global GDP in 2020 is estimated to fall by 4.4% compared to 2019, the most severe decline since 1960 – exceeding by far the drop of 0.1% which followed the global financial crisis in 2009. Whereas the latter originated in events unfolding since 2007 (and thus over time), the pandemic affected global markets within a single quarter. In a sample covering 49 countries representing 87% of global manufacturing value added, 81% of surveyed countries showed an average 6% decrease in seasonally adjusted industrial production in March in comparison with December 2019. In April industrial production was down in 93% of the countries, by 20% on average (again compared to December 2019).
As a result, governments have implemented a variety of measures to support their national economies. The deferment of taxes and social security contributions is the most common fiscal instrument implemented by governments, followed by credit subsidies to firms, income support for households and wage subsidies.
In many regions the economic impact was most severe in the second quarter of 2020. In the European Union seasonally and calendar adjusted GDP decreased by 12.1% after a 0.9% decrease in the first quarter as compared to 2019. Compared to the first quarter, US real GDP decreased at an annual rate of 31.4% in the second quarter of 2020 (it was down 5% in the first quarter) – and rebounded significantly in the third (up 33.1%). The Chinese economy shrank by 6.8% in the first quarter of 2020, but recovered to 3.2% and 4.9% growth in the second and third quarter respectively, compared to the same periods in 2019.
The economic impact of the pandemic is spread unevenly. European countries are among the hardest hit, with an annual estimated GDP decline of 8.3% for the Euro area. India saw a sharp contraction in consumption and a collapse in investment following the drop in domestic demand in the second quarter. China is the only large economy to grow in 2020, although estimated growth for 2020 of 1.9% is significantly less than the 6% expected at the beginning of the year.
For 2021 current forecasts see world economic output at about the same level as in 2019, driven by a strong recovery in emerging and developing Asia, especially China and India. Advanced economies are expected still to fall short of pre-pandemic levels.
As around 42% of global final electricity demand is from industry, and 22% is from the commercial and public services sector, economic activity and electricity consumption are closely connected. In advanced economies both sectors are responsible for roughly equal shares (around 32%). In emerging and developing economies, industry dominates by consuming around half of final demand, with the commercial and public services sector accounting for around 14%.
Global electricity consumption is on track to fall by 2% in 2020. This is significantly less than the 5% decrease we had forecast in the Global Energy Review in April, in large part due to a strong recovery in China and to a lesser extent in India. Demand dropped by more than 3% in the first quarter due to lockdowns in China and a very mild winter in the northern hemisphere. The second quarter dip was similar: although lockdown measures depressed demand in many markets by 20% or more for several weeks, the recovery in China (demand was up 3.9% compared to the second quarter in 2019) prevented a higher global reduction. Demand recovered in the third quarter as lockdowns ended and China, responsible for 28% of the world’s electricity consumption, grew by 6% year-on-year (y-o-y). Recovery in the fourth quarter has been hampered by new control measures in Europe and North America to contain the pandemic.
Demand for 2020 as a whole is expected to see the greatest decline in Europe, decreasing by more than 4%. Large decreases are in Italy, the United Kingdom and Spain (around 6% each) as well as France and Germany (5% each). In Asia Pacific, together responsible for 48% of global electricity demand, declines in Japan (around 4%), Korea (3%) and India (2%), and Southeast Asia (1%) are offset by the increase in China (2% growth). North American demand declines by 3%, with the United States decline slightly higher (3.6%). Demand in Central and South America is down by 4%, the same as Brazil. Eurasian demand is down by around 3% due to a decline in the Russian Federation (hereafter, “Russia”) of around 3%. Africa, with only 3% of the world’s electricity consumption despite having one-sixth of the world’s population, has seen electricity demand decline by 2% compared to 2% growth the year before. The decline in the Middle East is modest.
Economic structure plays a major role in determining the impact of the pandemic on the economy and electricity demand. Countries where most electricity consumption is in the industrial or residential sectors have been less affected. In China industry accounted for more than 60% of final electricity consumption in 2019, compared to 16% for households. By contrast, in the United States industry only accounts for 20% of final electricity demand, with residential demand at 37%. In Europe, however, the contribution of the service sector, particularly the heavily affected hospitality and tourism sectors, has led to a much greater impact on the economy and electricity consumption.
The public health crisis caused by the Covid-19 pandemic forced most countries to introduce lockdowns in the first and second quarters of 2020 – and in some areas again towards the end of the year. With restaurants, shopping malls and factories closed and office-based companies introducing home working, many countries experienced a drop in industrial and commercial consumption and an uplift in residential demand.
Spain, one of the hardest-hit countries in the European Union, saw a significant drop in its electricity consumption in both the industrial and commercial sectors. The fall in demand started to be visible in March. In the first quarter of the year industrial demand fell by 3.4% and commercial demand by 2.8% below the same period in 2019. Electricity demand reached its lowest point in April, resulting in a 10.6% and 20.8% decline in the industrial and commercial sectors in the second quarter compared with 2019. In the following months electric power consumption increased again, reaching March’s levels in August.
Similar trends were seen in the United Kingdom, where industrial electricity consumption fell by 17% in the second quarter of 2020 compared to the same quarter in 2019, and commercial electricity demand dropped by 19%. In the meantime, the United States commercial sector only saw an 11% drop during the same period, and a 9% drop in industrial demand, due to lockdowns being less severe and varying by state.
In Argentina, which at the end of March introduced relatively strict lockdown measures compared to other countries in the region, experienced a particularly strong decrease in industrial electricity demand, down 21% year-on-year in the second quarter, while commercial demand dropped by 15%.
The United States and China observed a year-on-year increase in residential electricity demand in the second quarter of 2020, which can only partly be explained by higher weather-induced heating and cooling energy demand.
Decreasing economic activity throughout the first and second quarters of 2020 can be detected in most European countries. Industrial activity saw a significant drop, mainly in the second quarter, in Germany, Spain, France, Italy and the United Kingdom. Manufacturing activity was significantly down in Germany, partly due to reduced production in the car industry (responsible for around 19% of GDP in the German manufacturing sector). Other countries, such as the United Kingdom and France, saw their most significant decrease in economic activity in the wholesale and retail trade, transport, accommodation and food service activities.
The third quarter of 2020 saw a recovery in electricity demand in commercial and industry sectors in the United States, Spain and Argentina. Nonetheless, consumption was still below 2019 levels.
Year-on-year changes in electricity demand for selected countries and regions in the first three quarters of 2020Open
Electricity demand rebounded sharply after a deep decrease during lockdowns, recovering as they were lifted. This is especially apparent in China, the world’s largest electricity consumer, where the first lockdown (in the city of Wuhan, where the pandemic originated, and later expanded to the whole Hubei province) began on 23 January and ended on 8 April.
China’s electricity demand dropped under lockdown in January and more strongly in February (down 11% compared to February 2019, leap year and weather corrected). As confinement measures were eased, electricity demand showed the first signs of recovery. By June 2020 electricity demand had recovered completely and was even higher than last year’s levels, back onto pre Covid-19 trends. For the first ten months of 2020, weather-corrected electricity demand in China is 1.2% higher than the previous year.
Other major markets in advanced economies experienced a similar pattern of decline and recovery – but have not recovered to quite the same levels as a year ago. In several European countries the initial local restrictions were soon replaced by full population lockdown measures: in the timeframe of two weeks, between 11 and 25 March, Italy, Spain, France and the United Kingdom asked their populations to stay at home and closed non-essential activities; in Germany measures were more or less strict depending on the individual Bundesländer (states), but most imposed curfews, restrictions on meetings and closed schools, restaurants and non-essential services.
Full lockdown measures pushed electricity demand down by 20% or more, with smaller effects for partial lockdowns. The most dramatic decreases were observed in Italy, where in the last week of March demand dropped by 28% compared to the previous year, weather corrected. For most others, the maximum decrease was in the 15-20% range. Those economies with a greater reliance on services, particularly in the tourism and hospitality sectors, were more strongly affected.
Since lockdowns were lifted, demand has gradually recovered to levels around 5% lower than the previous year owing in large part to the lower levels of economic activity related to ongoing restrictions. With the tightening of restrictions towards the end of the year, including new lockdowns, it is possible that fourth-quarter demand will be significantly lower than in the previous year.
United States electricity demand has shown similar behaviour, with demand recovering in the summer after falling by about 6.5% in the period March-May. Growth in residential demand has been much smaller than the decline in industrial and commercial consumption. As in Europe, new restrictions on activity in the fourth quarter are expected to lower consumption for the year.
India also entered lockdown in March and falls somewhere between the patterns seen in advanced economies and in China – demand had recovered to above the previous year’s levels by September 2020. In mid-November however, demand returned to last year’s levels due to the Diwali festival (taking place around two weeks later this year compared to last year) and strikes in the agriculture sector. Overall demand for the year is expected to be down by 2%.