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Demand Growth and the New Normal

Five forces are putting the squeeze on electricity consumption.

Fortnightly Magazine - December 2012
Figure 5 - Efficiency Gains of ENERGY STAR Qualified Models

(SDGE) and Southern California Edison (SCE)—currently have approximately 3.8 million customers on critical peak rebate (CPR) or peak time rebate (PTR) rates. Under these programs, utilities specify “peak event” days on which customers are paid a rebate for electricity saved during the designated peak period.

The results of similar programs around the world are illustrated by data from dynamic and time-of-use pricing pilots. Figure 3 plots the arc of price responsiveness— e.g., demand response as a function of the ratio of peak to off-peak prices. The amount of demand response rises with the price ratio, but at a decreasing rate. When the data are regressed, about half of the variation in demand response can be explained by variations in the price ratio. This result is remarkable because the programs differ in many factors, from regional climate to marketing approach. (See Ahmad Faruqui and Jenny Palmer, “ The Discovery of Price Responsiveness – A Survey of Experiments Involving Dynamic Pricing of Electricity ,” EDI Quarterly , April 2012.)

The model also shows that enabling technologies—such as in-home displays, energy orbs and programmable and communicating thermostats—further increase the amount of demand response.

Figure 6 - ERCOT Loads in Texas (3/9/11 and 8/3/11)

Environmental concerns have come to the forefront, making demand-side management programs ever more important to consumers. A new generation of consumers is emerging—and for this generation, conservation isn’t just a personal virtue. Web portals and social media are raising the consumers’ energy consciousness, and increasingly they understand that DSM reduces electricity use, and therefore cuts emissions. As a result, about 7 million households in North America are saving 1.4 billion kWh of electricity per year due to home energy reports that compare their monthly usage with their peer groups’ usage. And more consumers now are looking to buy high efficiency air-conditioning systems and refrigerators, while replacing old lighting systems that use incandescent lights with high-efficiency compact fluorescent (CFL) or light emitting diode (LED) systems.

Moreover, efficiency has become an important sales tool for all manner of products. Televisions are getting more energy efficient, and laptop computers and tablets continue gaining greater market share over power-hungry desktop PCs, further reducing energy consumption per capita. Businesses are looking to buy high efficiency heating, ventilation, and air conditioning (HVAC) systems while industrial facilities are looking to more efficient electric motors and those equipped with adjustable speed drives. So even as electrification of the economy continues, it’s doing so in an increasingly efficient way—further constraining the demand growth curve.

Codes and Standards

Utilities and customers aren’t the only groups responding to these concerns. The federal government has imposed codes and standards that promote energy efficiency in appliances and buildings. Additionally, several states have passed laws either requiring or promoting energy efficiency. Rapidly expanding innovation in appliances and building technologies, spurred on by state legislation and mandates, has significantly reduced energy consumption in buildings. California, the Pacific Northwest, and most states in the Northeast are leading the country in this regard. These areas are subject to major strains on the grid during peak demand hours, and regulators are using building efficiency standards as tools for helping grid