Brattle Economists Release Updated Assessment on COVID-19 Impacts on Energy Industry

BOSTON, May 12, 2020 /PRNewswire/ -- Economists at The Brattle Group have released today an assessment through April 2020 on the impacts and implications of COVID-19 on the energy industry. The report provides an update to an earlier compilation and assessment on the initial impacts through March 2020 of the pandemic on the industry.

The updated Brattle assessment shows that oil has experienced by far the greatest impacts on demand and price; in addition, demand has declined for electricity, and to a lesser extent for natural gas. Specifically, due to COVID-19 there was an average electric load reduction in April 2020 of -6.5%, about double the -3.3% effect seen in March 2020, as measured by the average impact on seven ISOs. Due in part to the essentiality of electric service, this drop may reflect the low ebb in average load reductions from social distancing, which is now starting to be relaxed (though further economic decline--and local conditions--could drive more load loss in some regions).

Other key findings of the Brattle assessment are as follows:

    --  Residential electric demand is up about 7%, while the demand from
        commercial and industrial (C&I) sectors is likely down about 15%.
        Because residential customers face mostly volumetric pricing while C&I
        customers have more fixed charges, it is likely that utility revenue
        losses will be smaller than load losses.
    --  Forward oil prices may not return to pre-COVID-19 levels seen last
        winter 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 appears to have the greatest lost production, due
        to reduced load and lower competing fuel costs, with some forecasters
        predicting it will decline 25% this year.
    --  There has not been a discernable reduction in renewable generation due
        to COVID-19, but 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. Many
        states are reviewing expanded decoupling mechanisms for COVID-19-induced
        revenue losses.
    --  Most economists anticipate material improvements to the economy in the
        latter part of this year, possibly ending the year as a whole about 6-7%
        down in GDP. However, there are structural reasons to worry whether the
        recovery can be this fast, due in part to lagging testing and contact
        tracing infrastructure for the virus.
    --  There is more optimism in the stock market. Volatility has declined
        since its peak in March 2020 (but stays elevated at 2008-2009 levels),
        and the S&P 500 has rebounded to roughly September 2019 levels, with
        utility stocks also increasing but to a lesser extent in April 2020 than
        the overall market.
    --  Bond rates remain at historic lows. The investor-owned utility sector
        has been given a "negative outlook" by S&P, but only 3 utilities have
        had downgraded ratings. The public power sector has been deemed "stable"
        by Moody's.

"Impacts and Implications of COVID-19 for the Energy Industry: Assessment through April 2020," is authored by Brattle Principals Frank Graves and Robert Mudge, Associate Josh Figueroa, and Research Analysts Tess Counts, Lily Mwalenga, and Shivangi Pant.

About Brattle
The Brattle Group analyzes complex economic, finance, and regulatory questions for corporations, law firms, and governments around the world. We are distinguished by the clarity of our insights and the credibility of our experts, which include leading international academics and industry specialists. Brattle has over 350 talented professionals across three continents. For more information, please visit brattle.com.

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SOURCE The Brattle Group