COVID-19: A power market update

Mike Zaccardi, CFA, CMT

COVID-19 continues to hamper power demand across the country. While many states have lifted lockdown orders, businesses are hesitant to re-open offices. Residential load is up as folks are working from home (and teaching from home). Schools across the nation are contemplating brick & mortar and/or virtual learning options for the fall semester. Harvard recently announced classes will be online this coming term.

The Brattle Group, an important power-market research firm and think-tank, provided a report on the latest Coronavirus impacts. The group of esteemed economists found that average hourly loads (also known as power demand) were off 3.2% during June. While the decrease is substantial, it pales in comparison to the huge 7.5% drop experienced during May.

April was also a month of COVID-induced power demand declines on the order of 6.5% versus normal. Lockdown began in March, so that is when we saw drops in net power usage, driven by industrial and commercial losses.

Brattle noted that residential power demand is actually up 8% while commercial and industrial load is down a whopping 10-15% due to the pandemic. Hourly load shapes have also changed – afternoon power usage is off and the ‘super-peak’ (when the highest hour of demand occurs) has been reduced. Lower super-peaks across the countries regional power markets usually means less price volatility.

Looking ahead, electricity prices for the balance of 2020 and full-year 2021 tell in interesting story. Forward prices for the rest of this year are down as COVID-19 is seen as continues to depress demand, but prices for 2021 are actually higher versus pre-Coronavirus levels – due mainly to higher natural gas futures.

How has the fuel mix changed? Natural gas continues its growing dominance. Some things never change. Natural gas usage relative to other fuels is up, but so too is renewable generation. Coal is the big loser as its place in the country’s generation mix drops ahead of the election.

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Read more about the Brattle Group’s findings here.