The Great Recession and the U.S. Power Market: Implications for the COVID Recession

The Great Recession triggered a 17-month, 5.1% drop in electricity demand across the United States. By mid-2010, electricity demand had rebounded, stabilizing at a level about 1-2% below pre-recession levels.

Prior to the Great Recession, electricity demand had been growing. It was not until late 2017 that demand growth began again, breaking through the pre-recession peak in December 2017.

The story of the national trend in electricity demand during and after the Great Recession is not just a single story. It is a story of many homes, businesses and institutions. We cannot know or tell everyone’s story, but we can see the very different impacts of the Great Recession on electricity use in the residential, commercial and industrial sectors. These different stories suggest what might lie in store as we endure and emerge from the COVID Recession.

The residential story

The Great Recession depressed electricity demand briefly, after which it resumed a more tepid level of growth. The 2.7% drop in electricity use in the residential sector was the mildest. The renewed growth reflected a more subdued housing market in which “factors such as higher student debt balances, tighter lending standards, lack of inventory of homes and slow wage growth [kept] potential buyers from the market.” The post-recession residential market was characterized by a “decade-long runup” in renter households, with new construction focused on high end multifamily units. With smaller, energy efficient designs, multifamily renters tend to use less energy than single family homeowners. Compared with single-family homes that dominated the pre-recession market, the market’s shift towards rental units helps explain the lower growth in residential electricity consumption.

The commercial story

The Great Recession triggered a 3% drop in commercial electricity use, followed by a sharp rebound in 2010. The rebound did not initiate a period of growth, instead, commercial energy use showed a gradual decline through late 2017. One factor has been the continuing shift toward employment in service occupations, and management, professional and related occupations. These occupations would appear to be less power-intensive than average, and in many cases may be associated with part or full-time telework.

The industrial story

The Great Recession caused a jaw-dropping 11.3% decline in electricity use, followed by a rebound to stabilize in 2011 at 4% below pre-recession levels. Since, US industrial production reached record-high levels in 2019, this suggests that industrial energy use reached higher levels of efficiency during the past decade.

Potential lessons for the COVID Recession

Looking back at the recovery from the Great Recession, it is clear that electricity demand in the residential, commercial and industrial sectors responded to the economic circumstances differently. Electricity demand during and after the COVID Recession will also vary by sector. Already, U.S. electricity demand is down by 10%, with some regional variations.[1] But there has been an increase in residential demand, in contrast with the Great Recession – commercial and industrial demand have driven the downturn.

Will there be a “V-shaped” recovery to electricity demand? Here’s a potential scenario:

• Even though residential demand is generally up, but it could actually decrease below pre-COVID levels when stay-at-home orders are lifted. As people return to work and as utility bill forbearance programs are lifted, a more frugal residential sector. 
• Commercial demand is down now, but as businesses reopen, there could be a substantial rebound. Still, that rebound might not reach pre-COVID levels due to business closures. If this occurs, it would look more similar to the post-Great Recession industrial trend than the commercial trend. 
• Industrial demand might also see a quick, but partial, rebound due to pent up manufacturing production. If consumer spending fails to return to pre-COVID levels, industrial electricity demand will decline along with production. 

Taking these three scenarios together, electricity demand might not return to pre-COVID Recession levels as economic restrictions are lifted. Instead, electricity demand may only partially recover.

[1] Julien Dumoulin-Smith, “Latest Load Trends & the ‘Shift’ Towards Resi: The Contrasting Tides of NRG vs EXC,” Bank of America Global Research (April 24, 2020).