When you hit bottom, the only way is up!

As this year draws to a close many will be saying “Thank goodness!”, for 2009 has been, for some, an extremely difficult year in which to do business in the power industry.

Although the power sector has not been as badly affected as others, such as the automotive or construction industry, it has not escaped unharmed.

A combination of falling electricity demand and project financing becoming harder to secure has put a real squeeze on utilities, making them revisit their forecasts for future electricity demand and either defer or cancel projects.

Back in May of this year, the International Energy Agency (IEA) forecast that we would see the global demand for electricity fall by 3.5 per cent this year ” the first decline in electricity use since 1945 when records began. According to Fatih Birol, the IEA chief economist, this showed how serious the recession had become.

When looked at in more detail, the IEA expects China’s electricity consumption to decline more than two per cent compared to 2008. Russia’s use is forecaste to drop almost ten per cent, while the rich countries of the Organization for Economic Co-operation and Development, which include the US and Japan, are set to experience a drop of nearly five per cent. One interesting and largely unsurprising exception was India, which is expected to show an increase of one per cent.

Another interesting study that assessed the impact of the economic downturn on the power utility sector was published by Argus Media. It found that between January and June of this year the weaker power demand as a result of the recession reduced power generation and sales across Europe.

Utilities especially active in the industrial sector appeared to be affected the most, which is in line with the IEA’s expectation that 75 per cent of the decline will be from the industrial rather than household market. Germany’s EnBW saw its sales to industrial consumers fall by 22.3 per cent from a year earlier, which reduced its total sales by 9.4 per cent.

Spain and Italy experienced particularly large demand falls. Italian firm Enel’s domestic sales fell by 6.7 per cent, although sales in other countries remained largely stable. Its generation fell by 8.8 per cent in Italy, faster than in other countries. However, Italian company Edison’s chief executive Umberto Quadrino expects the demand in Italy to improve slightly next year.

Spanish utility Endesa reported a 5.9 per cent drop in sales in Spain and Portugal. Stable sales in Latin America did limit the fall in its overall sales. Domestic rival Iberdrola generated four per cent less power in Spain compared with a year earlier. However, it managed to keep its fall in generation to less than the national 6.4 per cent demand fall by raising its higher-margin renewable output. Iberdrola’s hydropower generation increased by seven per cent and other renewable generation by six per cent.

In the Nordic market, lower than average hydro reserves reduced hydropower output, affecting Vattenfall’s generation. Its German sales were boosted slightly by the increased feed-in of wind power to its grid, but prolonged outages at its 1346 MW Kràƒ¼mmel and 771 MW Brunsbàƒ¼ttel nuclear plants in Germany had a negative effect on its first-half results. Brunsbuttel is expected to remain off line until next year, and there is no information on when Kràƒ¼mmel will restart.

This year has clearly been a challenging one for utilities, but with a growing number of economists talking about green shoots of economic recovery the outlook for 2010 is more positive, especially for those utilities that have kept a long-term view at the front of their minds.

Kind regards,
Heather Johnstone
Senior Editor

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