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Energy Market Update: June 11, 2020

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How does an expensive energy market like New England respond to a turbulent year?

Join Direct Energy Business Strategist Tim Bigler for a regional analysis in this week’s Energy Market Update.


2020 has been an eventful year, to say the least. Energy markets are still reacting to global shifts in oil production, as well as to the COVID-19 crisis and other developments. Meanwhile, the longer-term trends that have been reshaping the energy landscape in recent years are continuing to exert significant influence on markets across the country.

Results vary from region to region, but New England may present an instructive example of the possible effects of this year’s events. In reviewing these observations, keep in mind that New England tends to exhibit the highest electricity prices in the country, with elevated sensitivity to movements in the price of natural gas.

Firstly, energy prices in ISO New England (observed at Mass Hub) are in extreme contango; this means that calendar strips (which track the average price of electricity futures corresponding to a calendar year) for later years are more expensive than strips for earlier years. In other words, energy futures for 2024 are more expensive than 2023 futures, which are more expensive than 2022 futures (and so on). This same pattern is unfolding in natural gas markets. It stands to reason, then, that electricity prices would follow suit given that ISO New England is as much as 60 percent gas-driven.

The second thing to know about this region is that prices are at (or close to) all-time lows. Prices for the aforementioned calendar strips saw a small spike in April, but have since dropped to near their lowest recorded levels. Needless to say, COVID-19 is still playing a major role. These price fluctuations could represent an attitude within the markets that the pandemic isn’t done with us yet, and could continue to depress demand across several sectors.

However, renewable energy, ever-ascendant, is still a priority for states like Massachusetts, where wind and solar are continuing to capture market share. Likewise, Liquefied Natural Gas imports and supply via the Algonquin pipeline could be keeping prices relatively low. New England uses a good deal of gas for electricity generation, so the effect of gas prices cannot be left out when considering the cost of electricity in this particular region.

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Posted: June 11, 2020