The election was a resounding win for President-Elect Trump and provides him with a clear mandate to change federal energy policy. His ability to implement policies is further supported by the fact that the Republican party now controls the Senate and may control the House of Representatives. In light of this historic shift, we have provided a short summary of the likely energy policy changes to be implemented by the Trump Administration and their impact on energy prices. While our position has been that the outcome of the election will not significantly affect near-term prices, there are factors that may influence prices in the long term.

In late August, we wrote that while the result of the Presidential election will have a significant impact on Federal energy policy, it will not materially affect energy prices. We now have a somewhat clearer understanding of Vice President Harris’ energy policy, and we continue to maintain that while several Biden climate initiatives are at risk, the election will not significantly impact near-term energy prices. In fact, as recently noted by The Economist, “Green subsidies will probably survive Mr. Trump’s re-election, and Big Oil will probably do just fine under Ms. Harris.”[1]

Below, we break down a few of these key energy policies and explain why most are not actually in play.

The departure of President Biden and the nomination of Vice-President Harris challenges anyone predicting the impact of the 2024 election on energy policy. Unlike President Biden or former President Trump, both of whom have clear track records on energy policy, Vice-President Harris has said almost nothing to-date about her administration’s approach to the energy market or climate change. In her speech accepting the Democratic Party’s nomination, Vice-President Harris did not use the word “energy,” and there was only a single reference to climate change – that we need “[t]he freedom to breathe clean air, and drink clean water and live free from the pollution that fuels the climate crisis.” President Trump’s stance on energy-related policies is better known, and we expect his administration will take regulatory action to help coal, natural gas and nuclear power to better compete with renewables.  Notwithstanding this policy shift, our view is that a second Trump administration will not have any significant effect on near-term energy prices. Electricity and natural gas market fundamentals and the overall balance of supply and demand will likely be the main drivers of energy prices over the next six to twelve months regardless of who wins the election in November. 

The good news is that we now know the price of capacity through May 2026. The bad news is that capacity prices have increased by approximately 5x over the last auction. The surge in price was fueled by power plant retirements, rising regional demand, and regulatory requirements seeking to address the participation of renewables and how much capacity they can provide during periods of system stress. Before examining the details of this latest auction, it’s important to review how the capacity market got to where it is today. As a refresher, the PJM Interconnection operates the largest competitive wholesale electricity market in the United States, serving 65 million people across 13 states and the District of Columbia as shown in Figure 1. Its primary function is to coordinate the flow of power and develop market rules such that the system operates reliably and safely. A critical component of PJM's operations is its capacity market, which ensures long-term reliability by securing sufficient resources to meet future electricity demand.  

W. Edwards Deming, the father of Total Quality Management, famously stated,"Without data, you're just another person with an opinion." Deming was instrumental in using data and statistical process controls to make better business decisions. When it comes to energy markets, there is a data deficiency and a lack of price transparency for most clients. Without adequate energy market data, many energy-related decisions are made on speculation, inadequate or inaccurate information that can lead to actions taken on biases and false assumptions.Level5 is a proprietary platform built entirely in-house by 5’s industry-leading development team. For clients, it serves as a data repository, usage analysis tool, and supercharged market analysis engine. Since 5 is a data-driven company, Level5 forms the foundation of our energy advice and is at the core of our customized energy strategies. 5 firmly believes that better energy decisions are formed from better energy data.  

One of the most common questions clients ask when purchasing electricity or natural gas is, “How much money am I going to save?” This is a reasonable question and for many years, savings could be realized because energy prices had been trending lower. Figure 1 shows how the NYMEX has settled over the last 31 years. This chart shows that natural gas hit its peak in 2006 in the wake of Hurricane Katrina and Rita where gas prices approached $14/Dth. 

On behalf of the team at 5, I am pleased to forward our May 2024 market letter.  In this edition, we discuss several interrelated topics.  First, we look at ongoing legal challenges to two new federal energy regulations, (i) the SEC’s climate change reporting rules, and (ii) the EPA’s new power plant emission standards. Second, we address a question we are hearing often from our clients, especially those faced with rising energy prices: “Could President Trump’s election reduce the price of electricity?”