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Demand Growth and the New Normal

Five forces are putting the squeeze on electricity consumption.

Fortnightly Magazine - December 2012

the future that might introduce carbon taxes, electricity prices could increase by 25 percent and 33 percent relative to EIA’s base-case scenario in the GHG15 and GHG25 cases respectively.

In addition, technological innovation could spur more fuel switching from electricity to natural gas. Oak Ridge National Laboratory has developed gas-fired heat pumps, which could supply both heating and cooling. The expansion of combined heat and power (CHP) systems also will reduce the demand for electricity for heating purposes. Many industrial facilities now can satisfy their electricity and thermal needs using one fuel source. Instead of purchasing electricity for heating purposes, these facilities serve heating needs with waste heat that previously was released into the environment.

Variables and Regional Factors

Apart from the five primary factors affecting demand growth, a host of other forces are putting upward or downward pressure on electricity demand. The list is extensive: energy efficiency policies such as state-specific energy efficiency portfolio standards; natural competition between manufacturers, leading to improvements in energy efficiency of products; disruptive end-use technologies such as home automation, green buttons, and smart phones.

Of course, some factors could drive demand growth higher in the coming years. The digitalization of life at home and in the workplace has increased the need for electricity to power new appliances and technologies. And plug-in electric vehicles, while saving customers substantial gasoline costs, will bring a major increase in electricity use. Also, increasing home sizes result in more energy consumption, just as aging baby-boomers are spending more time at home. Plus, the United States population increasingly is migrating to warmer states, leading to increased demand for space cooling.

Across the country, there is considerable variation in demand growth and in the reasons why this growth has slowed down. An informal survey of utility forecasters helped to identify some of these regional differences.

In California, new home construction has collapsed in the wake of the recession, reducing forecasts for electricity demand. Manufacturers are resorting to self-generation and microturbines, cutting their share of electricity demand from 33 percent to 10 percent. Meanwhile, advanced metering has rolled out and dynamic pricing is following suit.

EV adoption, meanwhile, might moderate California’s falling electricity demand. NRG Energy is funding the installation of electric car charging stations across the state. Because one of the main barriers to electric vehicle expansion is the lack of an electric charging infrastructure, such a move might enable an increase in the penetration of plug-in electric vehicles in the vehicle market.

In the Pacific Northwest, industrial self-generation is rising, old industries are shutting down, and new industries, such as server farms, aren’t creating many jobs. In the Midwest, weather-adjusted use per household has dropped in the third quarter for the past two years. New England has seen both energy efficiency and demand response bid into forward capacity markets. New York’s housing construction has slowed down, possibly due to delayed family formation. In PJM, FERC approved price-responsive demand in the RTO’s tariff and operating agreements, allowing the rollout of advanced metering on a system-wide basis. More than 2 million customers will be