Energy efficiency measures are taking a big bite out of utility demand growth

Posted on February 01, 2016
Posted By: Dennis Wamsted
 

In today’s rapidly changing energy industry, efficiency measures seldom show up in the headlines—slow, steady improvements simply don’t have much `sizzle.’  But while they may be boring, these slow, steady improvements are rewriting the rules in the utility industry.

The latest indication of just how important these efficiency-related changes are occurred last month when the North American Electric Reliability Corporation released its annual long-term reliability assessment (which can be found here, http://www.nerc.com/pa/RAPA/ra/Reliability%20Assessments%20DL/2015LTRA%20-%20Final%20Report.pdf) of the U.S. bulk power electric system. For the first time, NERC said, its 10-year forecast for the annual growth rate in both summer and winter peak demand had dropped below 1 percent—“falling to the lowest rates on record.”

For the utility industry, where change and investment decisions are generally measured in decades, the collapse in peak demand growth rates has almost happened overnight. Growth rates for both summer and winter peak demand bounced around essentially between 1.8-2.0 percent a year from 1990-2003 (with a couple of outlier years slightly above and below those averages), and then the slide began (see chart below). It hasn’t been precipitous, rather more slow and steady—almost as if moving in tandem with the spread of the household appliance and other efficiency measures that the Department of Energy began rolling out in the early 1990s.

Improvements in refrigerator efficiency are perhaps the best known of these efforts. As the chart below shows, refrigerator energy use and price have come down sharply in the past 20 years, while unit size has increased—a trifecta that you can bet on. But it is by no means the only notable efficiency improvement. In fact, according to DOE, since 1990 its work to boost household appliance efficiency standards has cut energy use in:

  • new washing machines by 70 percent;
  • new dishwashers by 40 percent;
  • new air conditioners by about 50 percent; and
  • new furnace units by about 10 percent.1

 

The pace of these efficiency efforts has picked up steam since the Obama administration came into office in 2009: In the past six years DOE has issued 34 new or updated standards covering more than 40 products. The department says these new efforts alone will save almost 40 quadrillion British thermal units in total by 2030—roughly equivalent to the energy currently used in all U.S. buildings in one year. Coupled with the earlier standards, DOE says total cumulative energy savings could add up to more than 125 quads by 2030 (while saving consumers upward of $1.9 trillion).

Given this, it is not surprising that NERC’s report sees no end to the decline in peak demand growth. “As energy efficiency and conservation programs increase,” NERC wrote, “the declining demand growth rates are expected to continue.”

These energy savings may not be good news for utilities—figuring out how to make money in an environment where demand for your product is growing sluggishly, at best, is tough. But that is the environment utility executives must get used to—the slow, steady improvement in efficiency is destined to continue for years to come. Indeed, just two days after NERC released its 2015 assessment, DOE published two new efficiency standards covering commercial AC and furnace units that it says will be the “largest energy-saving standard in history.” Phased in, as have been most previous standards, the rule will require a 13 percent improvement in new AC and furnace units beginning in 2018, and then an additional 15 percent improvement five years later.

And other improvements are on the horizon. DOE, for example, is currently spending roughly $2 million on a research effort with GE that would wring even greater savings—upward of an additional 20 percent from today’s current standards—from the lowly household refrigerator. The research involves using the magnetocaloric effect (a process where the temperature of a material can be raised or lowered by changing the magnetic field) instead of traditional vapor compression refrigeration methods. In addition to being more efficient, the new technology would use a water-based coolant fluid, thereby avoiding the use of global warming-related fluorocarbons.

DOE estimates that the new technology could save upward of .4 quads of energy annually—hardly headline-grabbing sizzle, but a continuation of the slow, steady spread of energy efficiency improvements throughout the economy. If I were a utility executive, I wouldn’t be looking for a rise in NERC’s peak demand forecasts any time soon.

 
 
Authored By:
A long-time energy and environmental policy junkie, I earned my reporting stripes at The Energy Daily in Washington, D.C. I stepped down as the daily's executive editor in 1998 to spend time with my two young kids, and since then have worked as a freelance journalist and consultant.

From my Beltway base, I have covered Congress and the alphabet soup of regulatory bodies and cabinet agencies that oversee the
 

Other Posts by: Dennis Wamsted

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Comments

February, 02 2016

Malcolm Rawlingson says

I agree Brian, This is a good news story that is not being told adequately and which you have done a good job of explaining.But I would hasten to add that this is a phenomenon of developed nations and is the result of technological improvements that only affluent countries can afford. There remain over two billion people on the planet that have no access at all to electrical power and a further two to three billion that have limited access. So while developed nations do not need to build as many power plants to meet static or even perhaps declining electricity demand the developing nations will need thousands of power plants built over the next years to meet their burgeoning demand.

Also we are seeing definite movements towards electric vehicles and the electrification of railway and other transportation systems in North America which will increase demand for electricity in an effort to decrease the combustion of fossil fuels. Of course that does no good unless the electricity for the transport systems is derived from non fossil fuel sources such as nuclear power.

So while I see your point and wholeheartedly support energy conservation and efficiency it still does not stop the requirement to build new power plants. The problem for utilities will be how to finance the new plants with a decreasing funding base. Power stations do not last forever and they are expensive to build. With decreased revenue we are creating a very big problem which will inevitably translate into higher electricity bills as the utilities will finance the new plants not from selling more KW of power to consumers but by increasing the price of the Kw they already sell.

Since we cannot function without electricity you will find that the net result of efficiency is higher (not lower) electricity prices. So what you saved on reduced consumption you will lose on increased price. That is the law of supply and demand. Malcolm

March, 15 2016

Richard Vesel says

The EIA just put out a daily report saying electric energy demands declined again in 2015, and for five out of the past eight years. One of the increasing years was 2010, the year the economy rebounded from the steep drops of 2009. Taken together, those two years cancel each other out.

I disagree with Malcolm's interpretation of power pricing and the laws of supply and demand. Generally, prices go up because of increased costs of production, or demand outstripping supply. Costs associated with production will increase temporarily during the transition to new long-term sources, but once the new infrastructure is in, prices should drop again. A great example of this is Iceland. They invested heavily in geothermal power production facilities many years ago, and now power is dirt cheap!

"For comparison, in Iceland about 80% of all electricity produced is sold to aluminum smelters and other energy intensive industries, at a price close to 25 USD/MWh. If Iceland could sell electricity to UK, the revenues pr. every sold unit of electricity could be close to triple the current price in Iceland. Of course there would be a high transmission cost via subsea cable; probably close 35-40 USD/MWh. Still, the added profits would be substantial – if the electricity would be sold to UK or Ireland at 70-80 USD/MWh . At the same time, the UK or Ireland would get access to reliable renewable energy."

http://askjaenergy.com/category/geothermal-power/

When you don't have to buy fuel, and don't have to pay for waste disposal, purified cooling water, etc., then you can go on for years at a very low cost (O&M plus debt service expenses, and SG&A).

RWV

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