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German power demand may hit 26-year low on virus – analysts

(Montel) The coronavirus crisis could see power demand in Germany crash to its lowest level since 1994, though the impact on prices was set to be limited, analysts told Montel on Wednesday.

“The impact is quite difficult to assess at this point, without knowing how the spread of the virus is going to evolve over the next few weeks,” a London-based analyst said.

“But if a lot of factories shutdown or introduce shorter working hours in key industries, like in the 2008 financial crisis, it could be quite an impact.”

Last year, German power use fell 3.3% to 569 TWh, its lowest level since 2002 as the US-Chinese trade war left its mark on the country’s export-oriented economy.

It could slide to 535 TWh this year, should consumption drop another 6% as it did during the financial crisis, data from German statistics group Ageb showed.

A repeat of last year’s 3% decline would bring demand down to 552 TWh, still the lowest since 1998.

“We already saw an economic downturn in Germany last year and this effect could be extended or magnified by the economic impact of the coronavirus,” Hans-Georg Buttermann, head of Ageb told Montel.

Germany, the world’s fourth biggest economy, has 240 confirmed cases of coronavirus, making it the country with the seventh biggest number of Covid-19 victims worldwide, with the disease affecting nearly 100,000 globally.

Global recession fears
World stock markets had already taken a battering due to the epidemic, with fears its impact on industrial demand could lead to a worldwide recession. Central banks rolled out stimulus measures earlier this week in the hope of curbing the effect.

“As industrial demand is about half of total consumption in Germany, the big question is whether it [the impact of the virus] will spread to car manufacturing and other key industries,” the London-based analyst said.

Others agreed.

“For German power demand, things can get choppy,” said Wayne Bryan of Refinitiv.

“People aren’t travelling, they are staying away from restaurants. The impact on power demand could be massive.”

Germany’s Automotive Industry Association warned last week the virus was having an “increasingly international and tangible effect” on many companies along the supply chain, while the German finance ministry said it was ready to “act decisively”.

Germany’s minister of health, Jens Spahn, said the highpoint of the epidemic had not been reached, adding the “safety of the population takes precedence over economic interests”.

The UK said on Tuesday, when rolling out its coronavirus “battle plan”, that up to 80% of the population could be affected in a “worst-case” scenario.

Power price impact?
The impact on wholesale power prices, however, could be limited, said Sigurd Lie at StormGeo in Oslo, adding it was a “wild guess” to what extent the industrial and service sectors would be impacted.

“But to be a bit bold, a 20% cut in Germany industry, business and service consumption could represent an average over a week of 4-5 GW of lower consumption,” he added.

Taking into consideration potential plant outages due to staff shortages, the net impact could stand at 4-4.5 GW, knocking around EUR 1.50-2.50 off average spot prices.

The impact on longer-term contracts, however, has already been felt on the power market, which declined in step with financial and commodity asset classes.

German Cal 21 power – a European benchmark – had shed nearly 7% since hitting a one-month high of EUR 43.90/MWh on 17 February, with the latest selling pressure being spurred by news of the coronavirus spreading outside of China to more than 70 nations.

The contract was last seen up EUR 0.12 at EUR 40.80/MWh.

Reporting by:
Julia Demirdag
16:11, Wednesday, 4 March 2020