Economists at The Brattle Group have released an assessment on the impacts of COVID-19 on the energy industry through April 2020. The report is an update to an earlier compilation and assessment on the impacts of the virus through March 2020.
The updated assessment shows that oil has experienced the greatest impact on demand and price; in addition, demand has declined for electricity and natural gas.
Due to COVID-19, there was an average electric load reduction in April 2020 of -6.5%, double the effect seen in March 2020, as measured by the average impact on seven ISOs. In part to the essentiality of electric service, this drop may reflect the low ebb in load reductions from social distancing.
Other key findings of the Brattle assessment are:
- Residential electric demand is up 7%, while the demand from commercial and industrial (C&I) sectors is likely down about 15%.
- Oil prices may not return to pre-COVID-19 levels until 2026 or later.
- There are no clear COVID-19 effects on overall demand for natural gas. Residential usage was up this month compared to last year (with April being cooler than normal for most of the country), while industrial demand was down about 7%.
- Natural gas generation was down about 14% from March of this year, but up 4% compared to April 2019.
- Coal-fired generation has the greatest lost production, due to reduced load and lower competing fuel costs, with some forecasters predicting it will decline 25% this year.
- There will likely be delays in renewable expansion currently signaled by renewable industry unemployment claims and reports of supply chain disruption. The adverse effects of such delays could be materially amplified by expiring tax incentives at year-end 2020. Industry consolidation may be one result of these conditions.
- In April 2020, 10 additional U.S. states set mandatory service termination moratoriums, bringing the total up to 32 states. The remaining 18 states have voluntary suspensions of utility shutoffs.
- Material improvements to the economy are anticipated, possibly ending the year about 6–7% down in GDP.
- There is more optimism in the stock market. Volatility has declined since its peak in March 2020, and the S&P 500 has rebounded to roughly September 2019 levels, with utility stocks increasing but to a lesser extent in April 2020 than the overall market.
- Bond rates remain at historic lows.