As the coronavirus-fueled recession continues to get worse, one of the key questions in the energy industry is how long and how much electricity demand will be impacted. A 10% long-term reduction in demand was examined, and the market affected the most in terms of renewable energy demand is New York. Due to its formidable ramp up toward an aggressive renewable portfolio standards requirement, the wind and solar capacity needed by 2023 to keep pace decreases by roughly 2,400 MW under this scenario.
The economic impact of the coronavirus pandemic is increasingly jaw-dropping, with the U.S. recently announcing that 20.5 million jobs were lost in April as unemployment shot up to nearly 15% nationwide. In terms of electricity demand, widescale decreases in demand have been observed as a result of the shutdown.
Residential demand has seen an uptick, but this has been more than offset by a decrease in the commercial and industrial sector with businesses shut down and office spaces sitting unused due to work-from-home orders. This is expected to be a prolonged decrease as businesses in multiple sectors are expected to close permanently and as the landscape shifts to more people working from home long-term.
S&P Global Market Intelligence Energy Research applied a 10% decrease to electricity demand across the entire U.S. to determine the long-term impacts to renewable demand. The impacts varied, but no market was more significantly affected than New York. The passing of the Climate Leadership and Community Protection Act implemented a 70% renewable energy target by 2030, one of the most aggressive in the country. With a comparatively low renewable energy base, not counting existing hydroelectric resources, which count toward the target, the state has a formidable task to meet this requirement, needing just over 7,200 MW of wind and solar capacity built by 2023 to keep pace.
Reducing energy demand by 10% would cause substantial ripple effects in the renewable energy outlook in the state. This scenario reduces the demand for new wind and solar installations to keep pace with RPS mandates to roughly 3,800 MW by 2023, a decrease of 2,400 MW. Forecast wind and solar capacity needed for the state to get on track for compliance in 2021 would be reduced by roughly 1,800 MW. Renewable capacity demand would lower by an additional 300 MW in both 2022 and 2023.
This does not necessarily mean actual installation of wind and solar capacity will reduce by 2,400 MW by 2023 in New York. After all, the Climate Leadership and Community Protection Act still calls for 5,000 MW of solar capacity by 2025, and the state will still need a very aggressive build plan to reach 70% renewables by 2030 even if a prolonged 10% energy demand drop comes to pass. The New York State Energy Research And Development Authority, which procures renewables on behalf of load-serving entities subject to clean energy mandates, will remain active in issuing request for proposals for new renewable projects. Deferred demand for renewables resulting from recession would simply allow the state to more easily reach interim renewable targets and get a head start toward the 2030 mandate.
However, a 10% reduction in energy demand would have significant effects on the renewables industry, and New York's daunting road map in meeting its aggressive RPS targets exacerbates this effect. These effects, however, are largely theoretical. The actual real-world impacts are almost impossible to predict. If electricity demand remains structurally lower for example, demand for renewable projects to meet RPS requirements will eventually be affected as well. New York, however, has made a firm commitment to transition to clean energy, and wind and solar power will continue to increase their footprint in the state regardless of the long-term effects of the pandemic.
Load-serving entities subject to the state's renewables mandate include Long Island Power Authority, New York Power Authority, Consolidated Edison Inc. subsidiaries Consolidated Edison Co. of New York Inc. and Orange and Rockland Utilities Inc., Avangrid Inc. subsidiaries New York State Electric & Gas Corp. and Rochester Gas and Electric Corp., Fortis-owned CH Energy Group Inc. subsidiary Central Hudson Gas & Electric Corp., and National Grid PLC subsidiary Niagara Mohawk Power Corp.
To see wholesale price, supply and demand projections, see the S&P Global Market Intelligence.
Note on methodology: To estimate the impact of COVID-19 on demand for renewable energy projects created by New York's Clean Energy Standard, S&P Global Market Intelligence Energy Research applied sensitivity analysis to the Load & Capacity Data 2019 Gold Book report from NYISO. This sensitivity case used a 10% reduction to both peak load and energy demand for the years 2021 through 2023 as a proxy for a downside scenario in which efforts to develop an effective vaccine for the virus stall, causing a continuation of restrictions on economic activity. Building on this "10% demand reduction scenario," Market Intelligence estimated a glide path for renewable energy generation growth needed to comply with the requirement that 70% of New York's electricity comes from renewable energy sources by 2030. This analysis was done for the "base case" (using the Load & Capacity Data 2019 Gold Book demand forecast) and the "10% demand reduction scenario," starting with projected generation from existing power plants eligible to contribute towards the NY CES and developing estimates for new generic wind and solar capacity expansion in the years 2021 through 2023 needed to stay on track for the 70% renewable energy by 2030 objective. After developing the capacity expansion plans for each of these scenarios, Market Intelligence compared the results to form an estimate for how much of the generic wind and solar capacity projected in the "base case" might be at risk of cancellation in the "10% demand reduction scenario".
Alexander Cook contributed to this article.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.