Demand for electricity: Everything you need to know

The economy tends to be cyclical, alternating between growth phases and recession phases, so it is important to review your company's economic behaviour by means of statistics, data that will help you determine patterns or signals to study the economic situation that exists at all times. This is what economic indicators are used for.

But there are not only indicators that show us the past or the present, there are also those that enable us to detect certain changes in economic growth in advance. This type of indicators are called "leading indicators" and are usually linked to electricity consumption.

Some of the most common indicators used in Spain for the "future" analysis of the economic situation are the Synthetic Indicator of Industrial Activity (ISI in Spanish) and the Synthetic Indicator of Economic Activity (ISA in Spanish).

The electricity consumption indicator as a leading economic indicator

Even though the synthetic indicators that we spoke about before take a number of factors into account in their elaboration (sales figures for large companies, etc.) and which include the indicator for electricity consumption, we will study it as a leading indicator "per se" and its use in "predicting" the economy and knowing what the price of electricity depends on.

For electricity consumption to be used as an analysis tool, we have the following two sets of public data:

• The Electricity Demand statistical series
• The IRE or "Índice Red Eléctrica" (Electricity Grid Index)

Both are provided by the Red Eléctrica de España research team, and they are very interesting.

How can electricity demand be used as a leading economic indicator?

When there is an increasing trend for electricity demand in a country, this is a sign that, more goods and services are possibly being generated in the economy because to produce, developed societies usually require energy (mainly electricity). This also leads us to deduce that entrepreneurs and industrialists have greater demand from their end customers, a global panorama that anticipates economic growth.

When demand for electricity falls, this can be interpreted as a clear warning of the possible approach of a stage of recession or a decrease in economic activity. That is why it is important to always be aware of what is happening in the energy markets.

With the above interpretation, the total demand for electricity in Megawatts (MWh) published monthly in a graph by the Red Eléctrica de España (REE), the company that holds the monopoly in Spain for transporting electricity and the management of the electricity system, will be the leading economic indicator.

When analysing the REE graph it is important to take the season of the year into account:

• Climate: Because an increase or decrease in temperatures will result in higher energy consumption than in the same previous period.
• Working days: Because in accordance with the administrative work calendar, it should be taken into account whether there are more or fewer working days for the comparison to be correct.

What is the IRE or Índice Red Eléctrica (Electricity Grid Index)?

The analysis tools mentioned above to obtain electricity measurement data include the Red Eléctrica Index (IRE in Spanish), indicators and calculations also provided by the REE study team that are useful to know what the electricity demand is.

The IRE records the development of electricity consumption in medium and large companies in Spain (factories, warehouses, industrial plants, etc.), connected to the Grid with a contracted power of more than 450 kW for each supply point of those that make up the IRE.

According to REE, 47% of total electricity demand in Spain corresponds to consumers with supplies of more than 450 kW of power, so this index makes up half of demand in Spain. It is this segment of demand by large consumers that includes the companies that directly influence Spain's general economic behaviour.

This is why the IRE is "more precise" as a leading economic indicator than the Total Demand that we analysed above because the data obtained here come exclusively from the productive economic segment (the remaining demand corresponds to households, shops and businesses). 

In addition to what the study of these statistical series tells us at any given time, Endesa would like to help you understand how these indicators related to electricity consumption work so that can calculate the electricity consumption of your home and that can be very useful when it comes to making an economic analysis of the situation in Spain as a whole.