Economists at The Brattle Group have released today an assessment on the impacts through early April 2020 of COVID-19 on the electric and natural gas industries. The report summarizes recent developments in energy commodity spot and forward pricing, electricity demand, and financial markets, and considers select implications for utilities as and if the pandemic persists.

Among the assessment’s findings, the Brattle authors note that through the end of March 2020, relative to the depth of impact on other sectors, such as healthcare and employment, there has been a lagging visible effect on the utility industry’s market conditions, partly due to the essentiality of the industry. For instance, the report points out that across six major US centralized wholesale markets operated by independent system operators (ISOs), monthly average electric load dropped 8.7% in March 2020 as compared to the average of the previous four years. However, COVID-19 likely accounts for about half of this decline, as the rest of the impact, about 4.9%, or nearly 60%, is due to normal seasonal factors.

Electricity Load* in February and March 2020 Relative to February Load for Prior Four Years (2016–2019)


The high-level impacts on the energy sector, according to the Brattle assessment, include:

  • OPEC conflicts plus demand reductions have led to a 50–80% drop in crude oil prices (depending on grade) through March; the recent OPEC+ production cut agreement will help to rebalance the market, but storage limitations could become a significant problem over the next couple of months.
  • Natural gas prices have fallen by an average of 20% since early February, likely due more to seasonal warming than to COVID-19 impacts.
  • This year’s summer-to-winter natural gas spreads at Henry Hub have doubled due to lower near-term demand and expected lower associated gas production, creating risks for those hedging gas prices.
  • From the beginning of February 2020 to the end of March, there have been widespread electric load declines of 3–11% across the US, but with a bit less than half of those reductions likely attributable to COVID-19.
  • Peak power price forwards for the rest of 2020 have decreased between $2.40–$4.50/MWh from February to April, but this is not distinguishable from normal seasonality and other causes.

“Some significant utility impacts from the pandemic’s effects can already be anticipated,” noted Frank Graves, a Brattle principal and report co-author. “The utilities’ cost of capital likely has increased due to increased volatility and cost-recovery risks. Further, some merchant generators, which are directly exposed to market prices and lower demand, are likely to face financial challenges. We expect the impact of COVID-19 to become more discernable in the coming weeks as information emerges about how long the business closures are likely to last.”

The Brattle authors also point out several high-level impacts on utility finance:

  • Demand reductions from social distancing and ongoing consumer anxiety will likely create revenue shortfalls for most utilities that may not be recovered by existing decoupling.
  • COVID-19-induced reductions in locational marginal pricing (LMP) and energy demand from the shuttered economy will undermine revenues for most generation, and could be especially problematic for merchant baseload (e.g., coal, nuclear, some renewables).
  • Many states have ambitious targets for distributed energy resource (DER) adoption over the next few years that are often far above extrapolations of recent past adoption. COVID-19 could make those a lower priority, as well as less economical for a while.
  • Potential electrification growth (e.g., from EV adoption) may be delayed as a result of reduced fossil fuel prices and reduced consumer wealth.

Impact of COVID-19 on the US Energy Industry” is authored by Brattle Associate Josh Figueroa, Research Analyst Tess Counts, Principals Frank Graves and Robert Mudge, and Research Analyst Shivangi Pant.

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