Key conclusions from the latest assessment on Chinese power demand by the IHS Markit Regional Integrated Research Service suggest that the first country to implement a Covid-19 lockdown, China, has experienced an unprecedented power demand drop during the first two months of the year as a result of the stagnation of industrial and commercial activities. Electricity consumption declined 7.8% year on year during January and February, a sharper drop even than during the 2008-09 Great Recession.
The industrial sector, which accounts for two thirds of China’s electricity consumption, recorded a 12% decrease in power consumption. This is especially evident in sectors that are labour intensive as workers remained homebound for weeks; the textiles industry, for example, registered a 30% drop in electricity usage during the first two months.
The commercial and service sector saw demand decrease by 3.1% during the first two months of the year. However, home isolation policies drove an increase in technology usage that led electricity demand from the telecom and web service sector to increase by 27%. Residential electricity demand also increased by 2.4% as people stayed home.
Xizhou Zhou, vice president and managing director of global power & renewables, IHS Markit. “While hotels and restaurants shuttered, electricity demand from the telecom and web service sector increased 27% as home isolation policies drove up usage of technology such as mobile applications, internet and TV. We will likely see similar trends in other countries as lockdown policies expand.”
IHS Markit expects power demand growth to return to positive for the rest of the year as China returns to work. As of mid-March, many sectors and businesses have reopened, including more than 90% of markets and shops, and over 70% of small and medium sized business. Halted infrastructure projects have also restarted as workers returned to projects. As a result, the country’s power demand started to show year-on-year growth in March in terms of both average load and peak load.
But as the rest of the world head into recession, China will also be impacted. As a result, IHS expects GDP to grow 3.9% (compared with its pre-Covid-19 outlook of 5.4%), leading power demand to grow by only 2.8%; this compares with an average annual growth of 7% during the decade before.
The lower demand is creating more competition among the different generation sources in the country. One notable difference in China’s power system between the Great Recession and the current downturn is the share of renewables; solar and wind accounted for less than 2% of China’s power fleet a decade ago, but now they represent more than 20% of installed capacity.
Renewables have remained very resilient during the first two months of national lockdown and power demand drop. While thermal power generation dropped 9% year-on-year in January and February, wind generation increased by 1% and solar generation increased by 12%. This trend will likely continue.