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U.S. Power Industry Faces Transition Following Energy Demand Losses

CoBank
·3-min read

Facing a long recovery from COVID-19 impacts, energy sector expected to accelerate integration of renewables

DENVER, Oct. 27, 2020 (GLOBE NEWSWIRE) -- The COVID-19 pandemic has had extreme consequences for the U.S. power industry, including a substantial reduction in energy demand and intensified supply-side competition. Combined with the demand losses recorded in 2019, the industry will have shed the equivalent of a decade of growth. And while the industry might turn a corner in 2021, a contraction next year would be the first time in history that the industry has recorded losses three years in a row, according to a new report from CoBank’s Knowledge Exchange.

Even under the most aggressive recovery scenario, electricity demand will not return to pre-pandemic levels until 2024. The longer the road to recovery, the more likely the industry will confront outsized structural accommodation, fast-forwarding what would have otherwise been a decade-long cycle of energy transition in the U.S. dispatch stack.

The report notes that the pandemic and pressure from investors will likely accelerate the early retirement of coal and nuclear capacity while hastening the development of renewable energy generation.

“Even prior to COVID-19, a groundswell of structural change was narrowing the field for future fossil fuel use,” said Teri Viswanath, lead economist, power, energy and water, CoBank. “Economic fallout from the pandemic has helped accelerate the investment shift away from potentially stranded fossil fuel resources to a more pronounced wave of renewable development.”

Electricity suppliers can survive the impact of COVID-19, but the funding to fill the gap will ultimately have to come from somewhere. Securitization, rather than cost recovery, might be the best option for shoring up near-term liquidity needs. Yet asset rationalization ultimately must occur. Viswanath believes that weak demand and a second wave of renewable development could drive >100,000 MWs of coal and nuclear power plant shutdowns by mid-decade.

Indeed, coal and nuclear plant retirement might be further amplified by greater acceleration in clean energy deployment. The industry has never truly experienced energy transition. Yet, rising environmental concerns are setting the stage for new “climate math” where thermal displacement will open a wider door for renewable integration.

Watch a video synopsis and read the full report, Addition by Subtraction: Recent Trends Reinforce Longer-Term Shift to Clean Energy.

About CoBank

CoBank is a $152 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

CONTACT: Corporate Communications CoBank 800-542-8072 news@cobank.com