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Electricity: Utilities Grapple with a 'No Load Growth' Future

by Bob Shively, Enerdynamics President and Lead Instructor

In a recent post on our blog, Energy Currents, we wrote: “Despite a 9% increase in U.S. gross domesticproduct (GDP) since 2008, electricity use has not increased.” 

 

The utility business model historically has been tied to load growth. As loads grow, utilities invest in new facilities to serve the new loads. As long as load growth can be served at a reasonable cost, rates remain stable while utility profits grow.  So what might a lack of recent load growth mean for the future of the utility as we know it?

 

Here you can see the change in U.S. electric usage each year since 1950:

 

 

 

 

Historically, energy use rose almost every year except for the first year in a recession. But for the latest economic downturn beginning in 2008, things look different. We have seen multiple years of reduced usage even though the economy has slowly recovered. 

 

Why is this? And is this a permanent structural change? Let’s look at key factors that can drive load growth up or down:

 

 

 

 

 

Looking at these factors, it appears likely that zero load growth may be a lasting situation. The primary factor is strongly increasing energy efficiency. The Bloomberg New Energy Finance Sustainable Energy in America 2015 Factbook reports that in the last decade states have dramatically increased policies that support energy efficiency such as energy efficiency resource standards (EERS) and revenue decoupling that removes incentives for utilities to sell more power. 

 

The result has been a more than three-fold increase in utility spending on energy efficiency programs with over $5.8 billion spent in 2013. If public and private energy savings performance contracts are added in, the spending on efficiency was close to $14 billion in 2013.

 

 

 

 

 

 

 

In addition, the Obama Administration has created significant new efficiency standards for federal government buildings, and the defense department has pushed efficiency spending on military facilities.  We are beginning to see significant growth of distributed generation such as solar photovoltaics and a new wave of combined heat-and-power projects that reduce net loads seen by the utility. 

 

Industrial electric use in the last five years has declined by 3% while the U.S. Industrial Production Index has increased by 2.5%. This suggests that industrial growth does not drive electric load growth as significantly as it once did. And unless it is blocked by the courts, the EPA’s Clean Power Plan will further push states to use energy efficiency as the least-cost way to reduce greenhouse gas emissions.

 

When looking at factors that could drive load growth such as increased EV use, growth in electric appliances, larger square footage of buildings, and climate change it is hard to imagine such factors will overcome the strong push for energy efficiency and growth of distributed generation. Indeed, when the Energy Information Administration set out its forecasts in the Annual Energy Overview 2014, it felt compelled to provide a low growth scenario that showed no load growth through 2040.

 

The old utility business model of expanding profits through capital spending while keeping rates low appears to be under increasing pressure. Utilities must collaborate with their regulators to find business models that work in a world of low or non-existent load growth.  Maybe loads will grow again and the work won’t be needed. But being unprepared for a zero-growth future could be an industry-wide disaster.

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