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Electricity Demand's COVID Comeback

Utilities should benefit as the U.S. economy electrifies.

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The coronavirus pandemic hit utilities hard. U.S. electricity demand is set to fall nearly 3% this year, creating a stiff financial headwind for most utilities. In April and May, at the peak of the COVID-19 restrictions, electricity demand fell 5.8%, the largest two-month drop in 50 years of recordkeeping. Commercial and industrial demand is down more than 10%, a big hurdle for utilities in the Midwest and South to overcome. Higher residential lighting, air conditioning, and electronics use due to working from home, e-learning, and unemployment has brought some relief. Electricity demand has decoupled from economic trends during the last decade, but the pandemic shows that the economy still matters.

We forecast 1.2% average annual U.S. electricity demand growth through 2030, down slightly from our 1.25% average annual growth estimate published two years ago. The pandemic upended most energy forecasts, including ours, which is the primary reason our forecast is lower. Still, we remain more bullish than most industry forecasts even while assuming that energy efficiency remains a fierce headwind. Electricity is set to take share from other energy sources, such as coal, oil, and eventually natural gas. This offers utilities long-term infrastructure investment opportunities, supporting our 5.5% annual earnings growth outlook for the sector.

Travis Miller does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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