Electricity demand stays strong despite weakening economy

Electricity demand will not weaken as the economy flirts with recession, analysts predicted.. Fred Schultz, analyst with Raymond James & Associates Inc., in a report issued Monday challenged the conventional wisdom that says electricity demand moves in lock step with the overall economy. 'According to our work, electric demand should remain remarkably strong, regardless of a potentially weakening economy,' Schultz said.

April 9, 2001

2 min read

By the OGJ Online Staff

HOUSTON, Apr. 9--Electricity demand will not weaken as the economy flirts with recession, analysts predicted..

Fred Schultz, analyst with Raymond James & Associates Inc., in a report issued Monday challenged the conventional wisdom that says electricity demand moves in lock step with the overall economy.

"According to our work, electric demand should remain remarkably strong, regardless of a potentially weakening economy," Schultz said.

Looking at the relationship in the past 25 years between electric output and gross domestic product growth, there is a correlation that is not exactly close, he said.

In the years where growth was negative, electric consumption actually grew by 2%/year. Even as the economy begins to slow now, electric demand is not slowing down, he said.

Schultz tracks weekly electric output numbers because it is a better measure of demand. If electricity leaves the plant, it's being consumed by somebody, he said.

Schultz reviewed the output numbers and observed that year over year, electric demand for the first quarter of 2001increased by more than 2.5%, compared to the 2000 first quarter. And that increase is despite the slowing overall economic environment and a projected rate of growth of gross domestic product of 1-1.5%.

The US Department of Energy issued a report on Friday concurring that US power demand growth should increase 2.3% for 2001. If the present pace of electric output continues, then electric demand growth for 2001 will be on track to surpass the growth rate of the economy.

In Schultz's review of the 25 years of data, he found that the increase in electricity output surpassed that of GDP in 1976, 1980, 1987, 1988, 1989, 1993, and 1995.

Schultz says energy stocks should still be a good investment despite the weakening economy because US wholesale power prices for the first quarter on average are four to six times higher than average prices realized the first quarter of 2000.

"The revenues for pure play generators should be staggering as first quarter reports start rolling out in the coming weeks," said Schultz.