COVID-19: Potential Impacts on the Electric Power Sector

COVID-19: Potential Impacts on the Electric Power Sector

INSIGHTi

COVID-19: Potential Impacts on the Electric
Power Sector
Updated June 12, 2020
The Coronavirus Disease 2019 (COVID-19) pandemic is impacting the electric power sector directly
(e.g., illness and fatalities among workers) and indirectly (e.g., reduced electricity sales). Most indirect
impacts to date have been caused by the economic effects of the pandemic. Long-term impacts are highly
uncertain and likely depend on the pandemic’s ultimate toll on U.S. public health and the economy.
Potential impacts over the coming months include continued reduced electricity sales, increased electric
reliability risks, reduced utility bill payments, and delayed or reduced industry investment activity.
Reduced Electricity Demand
Electricity demand is determined mainly by weather patterns and economic activity. Economic activity in
recent months declined across the country, as governments took actions to slow the spread of COVID-19.
These actions forced many businesses to close or curtail operations. Many U.S. states saw electricity
demand drop between 9% and 13% in March and April 2020 relative to previous years, although some
(e.g., Florida) have not seen significant changes. With some states easing restrictions on businesses in
May 2020, electricity demand rebounded somewhat, but it remains lower than May 2019 in many areas.
Reduced electricity demand tends to lower wholesale electricity prices in the near term, as is also the case
for other energy commodities like gasoline. Prices in most wholesale electricity markets, which operate in
some parts of the country, declined between 22% and 37% between mid-February and mid-April.
Consumers may not see lower retail electricity prices, though, because of the timeline of electricity rate
regulation by states.
Reduced electricity demand could persist for months or longer. As of June 2020, the U.S. Energy
Information Administration (EIA) projects a 5.7% drop in annual electricity demand in 2020 compared to
2019. If demand and prices remain low for an extended period, some power plants may become
unprofitable. This could accelerate recent trends of changing conditions in the sector that affect
profitability. Additionally, utilities may delay or cancel construction of new power plants.
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Electric Reliability
Electric grid operators were preparing for the pandemic as the novel coronavirus began spreading in the
United States, according to the North American Electric Reliability Corporation (NERC). NERC oversees
electric reliability in the contiguous United States and adjacent regions of Canada and Mexico. NERC
noted increased reliability risks in Spring 2020: potential workforce disruptions due to illness and
quarantine, potential supply chain disruptions, and increased cybersecurity risks due to more teleworking
employees. According to NERC, these elevated risks are likely to continue throughout the summer, and
new risks may emerge. Potential new Summer 2020 risks include electricity supply disruptions caused by
deferred maintenance and operational challenges as the share of generation from solar energy increases.
Additionally, pandemic protections might cause utilities to take longer to restore power following
emergencies such as hurricanes (the Atlantic hurricane season began on June 1) or wildfires.
Reduced Bill Payments
Electricity customers may be unable to pay their monthly electricity bills if they have lost income because
of the pandemic. Under normal conditions, utilities and their state or local regulators put in place
procedures to stop electric service to non-paying customers (these procedures are commonly known as
shutoffs). Many utilities have voluntarily suspended shutoffs and many states and cities have banned
shutoffs as part of their COVID-19 response. Many of these shutoff moratoria are temporary, raising some
concerns that shutoffs may resume just as the summer season increases the need for air conditioning.
Many utilities anticipate losing revenue in the near term, from a combination of reduced sales and shutoff
moratoria. It is unclear how any resulting lost utility revenue may be addressed when normal conditions
return. Revenue shortfalls are often recovered by higher electricity rates in future years, though regulators
could be reluctant to increase rates if economic activity remains low. It is also unclear what actions
utilities and state or local regulators may take if customers accrue large unpaid bills during a shutoff
moratorium. Most shutoff moratoria do not include bill forgiveness—customers must ultimately pay for
the electricity they use.
Congress has not directly addressed shutoffs or utility revenues in enacted pandemic relief legislation.
Implementation of provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act;
P.L. 116-136) may have the effect of reducing cases of utility bill nonpayments (as summarized in CRS
Report R46401, COVID-19 Electric Utility Disconnections).
Industry Investment Activity
The electric power sector has been undergoing a transition over the last decade or so, characterized by
changing energy sources and increasing use of distributed generation. Congress has taken some action to
encourage this transition, for example by establishing tax credits to encourage the use of wind and solar.
The desired direction and pace of the transition remain a topic of debate.
COVID-19 may affect industry investment, potentially raising issues for Congress. In the near term,
companies may not be able to complete planned construction activities in time to meet deadlines for
expiring tax credits for wind, solar, and carbon capture projects. On May 27, 2020, the U.S. Treasury
Department addressed this issue by extending some tax credit eligibility deadlines. Some Members of
Congress have called for additional modifications. In the long term, less favorable economic conditions
could slow investment activities in the electric power sector.
Following the U.S. recession in 2008-2009, Congress took a number of actions that drove investment in
the electric power sector such as tax incentives and grants provided in

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the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). Similar stimulus in response to the
current recession may be weighed in the context of deliberations on support for other industries.

Author Information

Ashley J. Lawson

Analyst in Energy Policy

Disclaimer
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