Post on 30-Dec-2016
Electricity CurrentsA survey of current industry news and developments
Why Demand Growth May Be History
June 2013, Vol. 26, Issue 5 1040-6190/$–see front matter 1
Except for occasional hiccups, historically the electric
power sector could count on continuous demand
growth. Among the mature economies, the rate of
growth has been steadily declining over the years, yet
there has always been growth. If not 9.8 percent annual
growth experienced in the U.S. between 1949-59, at least
0.9 percent per annum, as in the latest projection by the
Energy Information Administration for the period to
2040. In developing economies, high-single-digit rates of
growth are still common, assuming the supply is able to
keep up with growing consumption.
But there are telltale signs that electricity demand
growth in the mature economies of the world may be a
thing of the past. The OECD economies are certainly
not growing as fast as they used to – as in the Euro
zone – and even if/when they do, there will be less
manufacturing and less energy-intensive industry.
Moreover, electricity-using appliances, lights, and
cooling and heating systems all are becoming more
efficient, as are buildings, where virtually all electricity
is consumed.
Making matters worse for demand growth, with few
exceptions – among them the current U.S. shale gas
In Electricity Currents This Month:
Why Demand Growth May Be History . . . . . . 1
PJM Market: Good, And Getting Better . . . . . 1
Renewables Are Setting, Breaking New
Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Electricity Currents is compiled from the
monthly newsletter EEnergy Informer pub-
lished by Fereidoon P. Sioshansi, President
of Menlo Energy Economics, a consultancy
based in San Francisco. He can be reached
at fpsioshansi@aol.com.
PJM Market: Good,
And Getting Better
The PJM market has always been, and
continues to be, a source of fascination to
anyone interested in competitive wholesale
electricity markets:
� First, it is by far the largest such organized
market operating in North America, among the
largest anywhere in the world, with 182 GW of
installed capacity and a large geographical
footprint;
� Second, PJM was among the first to
introduce a number of features, such as
locational marginal pricing (LMP), now
commonplace in other markets;
� Third, PJM has introduced and
successfully operates a number of markets,
including capacity markets, that are extensively
studied by other market operators who believe
such a feature may be an improvement to their
own; and
Continued on page 4
45 percent of total 2012 U.S. capacity additions and
exceeded capacity additions from any other fuel
source, including natural gas.
Of all existing capacity at the end of 2012, wind
made up 5.5 percent. However, wind provided
only 3.5 percent of U.S. electricity generation
during 2012, reflecting a capacity utilization rate
that is limited by the intermittent nature of the
wind resource.
Not all this can be dismissed as hype generated
by the renewable lobby. The global energy system
is large and long-lasting, which means it will take
several decades for renewables to become
dominant players. Yet if the trends of the past two
decades can be maintained for the next two, it will
have a pronounced effect.&
http://dx.doi.org/10.1016/j.tej.2013.05.014
bonanza – retail electricity prices are broadly rising
and are projected to continue to rise – e.g., in
Germany with the phaseout of the nukes. Aging
and declining populations – as in
Japan – suggest lower economic growth and lower
electricity consumption. Buildings are not only
getting more efficient and better-insulated but are
increasingly generating some of their electricity
needs from rooftop solar PVs and the like,
generously assisted by subsidies, feed-in-tariffs, or
net energy metering (NEM) laws.
The continuously falling price of PVs and other
forms of distributed generation (DG) coupled with
rising retail tariffs in many regions of the world is
turning a growing percentage of consumers into
prosumers, who produce some of what they
consume. The result is lower net volumetric
consumption.
In its latest quarterly report on Europe’s
electricity markets, the European Commission
points out that electricity consumption continues
to fall in EU, adding, ‘‘Annual consumption in EU
has fallen every year since 2008, by 1.2 percent on
average. The main reason is lower demand from
energy-intensive sectors such as manufacturing
and construction.’’
Many attribute the fall in electricity consumption
to the current economic and financial crisis
afflicting Europe, and that certainly does explain
most of what has been experienced since 2008. But
even after the economies of Europe rebound and
resume their growth, historical growth rates are
unlikely to be repeated. Even China, long used to
high growth rates, has been experiencing lower
growth figures, a fate that is likely to afflict other
developing economies. With lower growth rates in
the OECD, demand for Chinese goods is likely to
diminish. Another key driver is structural changes
in the economies of the West away from energy-
intensive industries, fortified by continued
improvements in energy efficiency.
While opinions vary, some observers of the
power industry believe that the phenomenon of
lower, and possibly no, demand growth may be a
new reality. That reality initially is afflicting a few
mature and slow-growing OECD economies where
retail prices are already high and rapidly rising, as
in Japan or Italy. The pattern could be replicated
in other economies as they reach similar stage of
maturity and demand saturation.
Australian retail prices, now among the highest
in the world, provide another example of what
may be behind falling demand. German electricity
tariffs, expected to rise due to the nuclear phase
out, are likely to dampen future demand growth
in that country, no one can tell by how much.
The evidence to date is spotty and limited to a
few countries – and it is not clear if it is entirely
due to the recent economic downturn or more
permanent. In the case of Australia, virtually
Why Demand Growth May Be History
Continued from page 1
4 1040-6190/$–see front matter The Electricity Journal
unaffected by the global financial crisis, the
downturn clearly cannot be blamed on lower
economic growth or declining population. The fact
that there are at least a million solar roofs in
Australia today with millions more to follow, and
significantly higher retail tariffs, offers a more
convincing explanation. Australians are not
necessarily using less electricity, merely buying
less from the grid, because a growing proportion is
self-generated.
The recent experience of declining demand in
New Zealand and the UK also suggests that a
future with little or no demand growth may be a
realistic scenario beyond just Australia. There are
clearly other factors at play in different parts of
the world. It cannot be blamed solely on rooftop
solar PVs.
Aside from the expected growth of self-
generation, future homes and buildings are
increasingly subject to mandatory regulations to
become zero net energy (ZNE), passive or nearly
self-sufficient. The city of Lancaster, Calif., recently
passed an ordinance that will make the city of
160,000 virtually self-sufficient. Other communities
are expected to follow.
In summary, a confluence of three powerful
forces will make individual buildings and entire
communities self-sufficient:
� Low and falling costs of self-generation;
� High and rising grid-supplied retail electricity
tariffs; and
� Grass-roots support for stringent building codes
and rising appliance efficiency standards, including
mandatory ordinances for zero net energy (ZNE)
buildings and solar-equipped rooftops.
These trends, currently limited to a handful of
rich countries with high living standards, are
likely to spread elsewhere once a precedent is set
that they are technically feasible and not
outlandishly expensive.
The future of electricity demand growth, of
course, is influenced by economic growth,
structural changes in the economy, and energy
intensity, but also by efforts to manage
consumption by promoting energy efficiency. As
everyone knows, motivating electricity suppliers to
encourage their customers to use fewer kWh can
be a win-win-win strategy for consumers,
suppliers – assuming that they can gain from such
efforts – and the environment.
In the U.S., an increasing number of state
regulators are becoming supportive of initiatives
undertaken by utilities to encourage their
customers to use electricity more efficiently. A
recent survey of customer-funded spending on
energy-efficiency programs by Lawrence Berkeley
National Laboratory (LBL) expects such
expenditures to increase from $6.5 to $15.6 billion
by 2025, with a mid-range projection of $9.5
billion. Another study, by the Institute for Electric
Efficiency (IEE), concurs, projecting U.S. utility
customer-funded energy efficiency budgets to
exceed $14 billion by 2025. Whatever the numbers,
the budgets are rising and delivering results: lower
demand growth.
The LBL study says projected growth in
program spending is driven by policies in a
number of states that require utilities to obtain all
cost-effective energy-efficiency savings as well as
energy-efficiency resource standards (EERS), which
require minimum energy savings goals each year,
similar to renewable portfolio standards (RPS). ‘‘In
addition, we see some utilities turning to energy
efficiency as part of their strategy for reliable
delivery of electricity as older coal-fired generators
are retired,’’ according to Charles Goldman, a co-
author of the study and head of LBL’s energy
analysis and environmental impacts department.
What is significant about these budget
projections is their longer-term cumulative impact
on U.S. electricity consumption. The LBL study
points out that if states remain on their current
policy paths, annual incremental savings from
electric energy-efficiency programs could be
expected to reach about 0.8 percent of retail
electricity sales in 2025, compared to about 0.5
percent in 2010.
Electricity savings at that level would essentially
wipe out any projected load growth forecasted by
the Energy Information Administration (EIA),
which puts the reference case growth rate at 0.9
June 2013, Vol. 26, Issue 5 1040-6190/$–see front matter 5
percent per annum. Goldman cautiously notes
that, ‘‘So far, only a few very aggressive states
have come close to offsetting growth in electricity
needs through efficiency,’’ adding, ‘‘Our finding
that, in aggregate, U.S. energy-efficiency programs
could offset a significant portion of projected load
growth in the electricity sector over the next
decade is subject to some uncertainties but striking
nonetheless.’’
Goldman and his LBL colleagues may be
conservative in hedging their bets. Other analysts
are more bullish that electricity demand growth can
be a thing of the past in the U.S., and many other
parts of the rich world, only if the policymakers
take more proactive steps to encourage investments
in energy efficiency and managing the demand side
rather than in building more supply-side resources.
This will most likely be a cheaper option, with less
stress on the environment.
Numerous studies have shown what can
be achieved by simply pushing building
codes and appliance energy efficiency standards.
One such study by IEE shows the stunning
results of two alternative future scenarios
for U.S. electricity demand growth: in one
case, demand growth disappears, in the
other case, overall electricity consumption actually
falls from its current level. And by most estimates,
following such a path would be less costly than
building more plants, transmission and distribution
lines – the traditional means to meet customer
demand. It doesn’t have to be that way in the
future.
Nor does our use of electricity – or energy in
general – necessarily need to grow at the same rate
as GDP any more. Prior to the first oil crisis in
1973, U.S. energy – and electricity – demand grew
at a faster rate than GDP – the same situation
experienced in rapidly growing economies of the
world today. During the period 1975-1995, the two
growth rates were nearly equal. In more recent
years, however, GDP growth has been sustained
with relatively little growth in electricity use. There
is no reason why future economic growth cannot
be sustained at zero or negative electricity demand
growth.
This phenomenon, now happening in mature
countries, will eventually apply to the rest of the
world. Perhaps a short cut can be found so
developing countries, too, can sustain economic
growth without large increases in energy
consumption.
Take lighting, which consumes more than 20
percent of U.S. electricity. Efficient and long-lasting
light-emitting diodes (LEDs) can cut the lighting
load by up to 80 percent. Granted, LED lamps are
expensive, typically around $30 to replace a 60 W
incandescent bulb selling for less than a dollar. But
the prices for LEDs are rapidly falling (they’re now
in the $10-14 range). Given their long life, they
recover their initial cost within a couple of years,
depending on the prevailing tariffs. There are
many other examples.
The end of electricity demand growth is not only
within striking distance, but it can be achieved
with lower energy costs and increased comfort
levels. The environmental benefits are icing on the
cake.&
http://dx.doi.org/10.1016/j.tej.2013.05.012
6 1040-6190/$–see front matter The Electricity Journal