Efficiency gains, if not properly managed, can quietly take away most of the present market for electricity. But they also offer alert utilities an unprecedented opportunity to control risk,...
Saving Gigabucks with Negawatts (1985)
In an age of costly electricity and cheap efficiency, smart utilities will sell less electricity and more efficiency.
of a dollar of gross national product (GNP) has fallen by a fourth in the past decade — not through the sophisticated means I described, but mostly through such simple measures as caulk guns and duct tape. Even though the energy-GNP ratio continues in free fall by several percent per year, we have barely scratched the surface of how much efficiency is available and worth buying.
Of course, the electricity-GNP ratio has so far been more durable than the primary energy-GNP ratio — though that durability is often exaggerated: for example,
- Electric demand grew slower or fell faster than GNP in six of the past 10 and in seven of the past eight annual intervals;
- Electric demand has lately risen only about 80 to 90 percent as fast as GNP, and this elasticity is trending downwards;
- The electricity-GNP ratio has fallen since 1977 — steadily since 1979;
- At least 15 percent of U.S. economic activity, and the fastest growing part, is in the “gray economy” not reflected in the electricity-GNP ratio;
- In any event, correlation is no evidence of causality — as we discovered in the past decade, when the supposedly sacred and immutable causality inferred from the “ironclad” energy-GNP correlation suddenly crumbled.
This last point deserves special emphasis. No amount of econometric analysis of past behavior can predict the SL light bulb. In fact, there are at least seven good reasons why the electricity-GNP correlation has persisted a decade longer than the energy-GNP correlation, but should not long continue to do so:
- Compositional change: an average service-sector worker, for example, uses a quarter as much electricity as an average manufacturing worker, and many of our most electricity-intensive industries are shrinking or moving offshore;
- Most electricity saving technologies, unlike most direct-fuel saving technologies, are too new to be widely familiar or available;
- Most electricity using devices are specified by mechanical engineers, speculative builders, landlords, and others who care about capital but not running costs, whereas most fuel using devices are bought by end-users concerned with both;
- Electricity is more heavily subsidized than direct fuels (marginal nuclear electricity, for example, is least 70 percent subsidized);
- Power plant lead times are so long that it takes decades for marginal costs to work through fully into average prices (much slower than for fuels);
- Higher fuel prices hit direct-fuel users with full force, but are diluted by fixed charges when reflected in electric bills; and
- Many utilities have, or until lately had, promotional tariffs and programs.
As the lags arising from these artifacts gradually dissolve, I expect electric demand to trend downwards, just as total energy demand has been doing for years. The rate shock soon to hit a third of American households will speed that trend. Rapid economic growth — or, in particular areas, rapid in-migration — will also accelerate gains in electric efficiency, because old, inefficient buildings and equipment will be fixed up, retired, or diluted faster. And the writing is already on the wall: Electric demand per house, per commercial customer, and per unit of industrial output has been approximately flat or