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.  

Hurricane season officially began this month and in a report at the end of May, NOAA predicted between 17 and 25 named storms for the period between June 1 and November 30. According to NOAA, “The upcoming Atlantic hurricane season is expected to have above-normal activity due to a confluence of factors, including near-record warm ocean temperatures in the Atlantic Ocean, development of La Nina conditions in the Pacific, reduced Atlantic trade winds and less wind shear, all of which tend to favor tropical storm formation.” It is only three weeks into hurricane season and Tropical Storm Alberto has already pounded Mexico and parts of Texas with torrential rain and flooding. Many clients ask how hurricane and tropical storm activity affect energy prices. In the past, significant hurricane activity in the Gulf of Mexico had a major impact on natural gas prices. In the 1990’s, hurricane tracking was one of the most important fundamentals energy traders watched. The destructive capabilities of a powerful hurricane in the Gulf of Mexico heading towards the large production regions (Corpus Christi TX to Mobile AL) would cause drilling and production platforms in the Gulf to evacuate their personnel, typically requiring the well to be closed. This would result in a dramatic reduction in the amount of natural gas produced for a week or more if there was substantial damage to the platforms. As shown in Figure 1, the highest natural gas prices in the last thirty years occurred in the wake of Hurricanes Rita and Katrina in 2005. Both storms caused major disruptions to the production and flow of natural gas.   

New York, like many states across the country, has a standard by which certain qualifying renewable generation assets are awarded one Renewable Energy Certificate (REC) for each MWh of electricity delivered to the grid. RECs provide two main functions to the market: