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Electricity: Purdue Study Suggests Indiana Utilities Must Learn to Live with No Load Growth

By Bill Malcolm, guest author

For the first time in the state’s history, Indiana electricity demand for the next 20 years is expected to be flat. This is the finding of a recent forecast of Indiana electricity supply and demand prepared by Purdue's State Utility Forecasting Group for the Indiana Utility Regulatory Commission (IURC).

 

"Indiana Electricity Projections: The 2013 Forecast" was prepared for the IURC per a 1985 law that requires Purdue’s State Utility Forecasting Group (SUFG) to assemble a state-wide electricity demand and supply forecast every two years[1]. The recent study finds that electricity demand is projected to grow at an annual average rate of 0.74 percent over the next 20 years. By contrast, the forecast two years ago predicted a 1.3% annual growth rate.

 

Why is this happening?

"This growth rate is considerably lower than Indiana has historically experienced and lower than the 2011 SUFG projections," Douglas Gotham, SUFG director, said in a recent press release. "The lower growth in electricity usage is primarily due to increasing efficiency; that is, using less electrical energy to operate homes and businesses."

 

According to Gotham, efficiency gains are projected to occur from three sources:

  • utility-sponsored conservation efforts
  • higher projected electricity prices making investments in higher efficiency equipment more cost-effective
  • and stricter federal energy efficiency standards.

"This is something we've never seen before: essentially no growth in electricity for the rest of the decade," noted Gotham.

 

About those electric rates...

The Purdue study also looked at rate impacts. Adjusting for inflation, electricity rates are expected to rise 32% by 2023. Three factors are attributed to the projected increase:

 

  • new EPA rules
  • the impact of higher rates on usage (elasticity of demand)
  • and the increase in energy efficiency.

Essentially, increased costs of operation for the utility must be paid for by less use. Thus rates have to go up. The 2013 forecast predicts Indiana electricity prices will continue to rise in real (inflation-adjusted) terms through 2023 and then level off through the remainder of the forecast period.

 

A recent story in the Indianapolis Business Journal noted Indiana has lost its low-cost electric rate advantage with industrial rates, and those rates are now higher than neighboring Illinois, Ohio, and Kentucky. Ten years ago, the rates were lower than neighboring states except Kentucky. The story notes that the Indiana Energy Association cites Federal pollution control mandates as the culprit since the state gets 80% of its electricity from coal. The new $3.5 billion Duke Edwardsport coal gasification plant is also a factor for Duke’s customers[2].

 

Other highlights of the Purdue study include:

  • Peak usage growth is also down, growing at just 0.9% per year (compared to 1.28% in 2011 and 1.61% in the 2009 forecast).
  • The 2014 reserve margin will be in excess of what is typically required (30% for 2014) but will drop to 20% in 2015 and 19% in 2016.
  • There is very little need for resources in the near term; 1,450 MW will be needed in the first half of the forecast period.
  • Incremental energy efficiency,  which include new programs and the expansion of existing programs, are projected to reduce peak demand by approximately 135 MW at the beginning of the forecast period and by more than 1,833 MW at the end of the forecast.
  • Demand response programs are projected to increase from 1,205 MW to about 1,420 MW over the forecast horizon.

So how is Indiana responding?

Legislation is pending in the State House that would end the state’s energy efficiency and demand response programs (at least for industrial customers). SB 340 was initially meant to allow industrial customers to opt out of paying for such programs. After hearing testimony that such a policy was inequitable, SB 340 was amended in the House to end the program altogether.

 

And as recently noted on Enerdynamics’ blog, new construction of power plants is falling into question, and some customers are pushing for deregulation of retail sales to allow consumers to buy power from marketers rather than the utilities. Meanwhile, I’m sure the utilities are privately working furiously to develop business plans that can survive low load growth.

 

Want to learn how distributed generation, renewables and microgrids are contributing to low load growth and how utilities are facing the low load growth challenge?  Attend Enerdynamics’ Distributed Energy, Renewables, and Microgrids seminar in Chicago April 7-8, 2014.

 


References

 

1. A copy of the report is available on the State Utility Forecasting Group's website at http://www.purdue.edu/dp/energy/SUFG/ 

 

2. Indianapolis Business Journal, Feb 17-23, 2014, page 27A

 


 

About the Author: Bill Malcolm is an energy economist based in Indianapolis. He has worked for PG&E, MISO, and ANR Pipeline. He can be reached at billmalcolm@gmail.com.

 

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