Insights on the New Administration and 2021 Energy Market

2020 was an atypical year by many measures – a devastating pandemic, severe economic downturn, volatile social strife – which has affected nearly every aspect of our lives, including the U.S. election.

Amidst the strife, an Associated Press VoteCast survey shows that the vast majority of U.S. voters knew who they were going to support in the 2020 Election well before candidates hit the campaign trail.

President-elect Joe Biden is keenly focused on energy and climate and has committed to taking more dramatic steps against the climate crisis than any nominee before him. Biden is focused on rejoining the Paris Agreement on climate change, supporting nuclear power, hydropower, carbon capture and storage, eliminating emissions of greenhouse gases from the U.S. power sector by 2035, and reaching net-zero emissions across the economy by 2050.

As the list of anomalies in 2020 continues to grow, the U.S. energy market is a top contender. No matter the year, fluctuations in electricity demand and prices are common. As weather, fuel prices, and other factors underlying supply and demand are always relevant, there is little doubt that the pandemic has materially impacted energy markets.

Demand for electricity took a nosedive during the first few months of the year as shelter-in-place orders took effect. For many businesses, working from home became the norm. By one measure, over 90 percent of Fortune 500 employees were working from home in the spring. As the summer of 2020 wore on, the effects of the pandemic appeared to have diminished, at least partially, and more typical drivers–such as heat–gained precedence in the electricity markets. In September, average U.S. electricity prices were still lower for the month compared to 2019. However, October marked the first time in 2020 that the average monthly price across a seven-hub index increased year over year.

2020 Energy Market Observations

  • U.S. electricity market prices have been generally lower through the first 10 months of 2020, having fallen by nearly 25 percent on average across seven major power hubs 1 compared to 2019.
  • Electricity prices partially rebounded in the summer as some states reopened, though the weather was also a factor; average monthly prices were higher year over year for the first time in October.
  • While spot natural gas prices at Henry Hub have averaged 27 percent lower so far this year, the coronavirus pandemic contributed to lower electricity demand across the country, resulting in weaker power prices.
  • In October, the Henry Hub natural gas spot price averaged $2.39 per million British thermal units (MMBtu), up from an average of $1.92/MMBtu in September. Higher natural gas spot prices reflect stronger demand for liquefied natural gas (LNG) exports.
  • The EIA estimates that total U.S. working natural gas in storage ended October at almost 4.0 trillion cubic feet (Tcf), 5% more than the five-year (2015–19) average and the second-highest end-of-October level on record.
  • Utility-scale battery storage systems are increasingly being installed in the United States. These systems have a wide variety of applications, including integrating renewables into the grid, peak shaving, frequency regulation, and providing backup power.

The degree of change that lies ahead is uncertain as a divided government and market forces will have a significant impact. As always, Usource energy consultants will continue to provide energy market insight, guidance, and support to help our clients successfully navigate through the complexities of a changing energy market. If you have questions about your current energy strategy or how to best position your organization for energy planning success in 2021, please contact us for a free consultation.

This content is for informational purposes only and does not constitute legal or trading/investment advice. Nothing in these materials suggests any prediction regarding any level of movement in forward prices for natural gas or any other commodities. Historical market fundamentals do not predict future price movements or price volatility. Consumers mSources

Bloomberg; Wood Mackenzie; SNL, Genscape; Drillinginfo; U.S. Energy Information Administration; U.S. Department of Energy; Nuclear Regulatory Commission; NOAA; NextEra Energy Insights; Sosnik, Doug. “2020 U.S. Election Results,” 7 Nov. 2020.ust make their own separate and independent evaluations of their specific needs.

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About the author

Scott MacDonald

As Usource's Managing Director, Scott brings 25+ years of experience in the energy industry to the Usource Team. He is a recognized expert in energy economics and consulting. He holds an MS from MIT and a BA in economics from the University of New Hampshire.