If your business is selling electricity, then a new analysis by the American Council for an Energy-Efficiency Economy showing flatlining or even falling demand is not encouraging news.
In June 2013 Ron Binz spoke about disruptive forces facing the utility industry. He was Obama’s nominee for head of the Energy Regulatory Commission until Mr. Binz dropped out in the face of pretty intense industry pressure. One of the main disruptions leading to troubles for utilities is waning sales growth in the electricity sector. It’s a problem. Last year in Ann Arbor, Binz showed a chart depicting less than 2 percent growth in energy demand going forward. However, a new report shows an even worse picture for the traditional purveyors of electricity. Use has actually been falling since 2007 and continues to do so.
Electricity use peaked in 2007 and then started to fall year after year. Electricity use in the U.S. is 1.9 percent below the 2007 peak. And in 2013 demand was lower than in 2012. Some experts argue that this negative-to-zero growth in demand is mostly because of the national recession. And for the deep recessionary years, that may have been true.
However, as the Great Recession falls further into the rear view mirror, electricity demand continues to stay flat or even decline even as the economy grows.
The ACEEE analysis explored electricity use trends going back to 1993 with a detailed focus on usage between 2007 and 2012. The study explored factors such as changes in GDP, changes in pricing, weather changes, and energy efficiency programs and policies. Between the focus years of 2007 through 2012 the dominant factors causing change in electricity usage in residential and commercial sectors appear be energy efficiency programs and policies and warmer weather. However, ACEEE indicates that there is insufficient data to understand what’s going on in the industrial sector.
Regarding energy efficiency, Binz suggested we think of it this way: Today a refrigerator uses little more electricity than a light bulb did a decade ago. And a light bulb uses as much electricity as a calculator did a decade ago. That advance in efficiency isn’t going backward and people aren’t going to start opting for energy-hog fridges anymore. As efficiency settles in from policy changes and industry standards, it’s going to put continually downward pressure on demand.
The exact reasons for weak electricity demand may not be 100 percent certain. However it’s certainly in line with the idea that utilities are facing an upheaval in the electricity market. It’s just one of the three major disruptive challenges:
- Flat or even negative growth in electricity demand
- Shrinking access to credit
- New technologies, such as rooftop solar
Rooftop solar was recently cited by utilities as a potential “mortal threat” to the current business model. As the market shrinks due to reduced demand it doesn’t take much rooftop solar to tip the scales of that demand into constant shrinkage. That makes it mighty hard to pay back investment on massive and expensive coal, nuclear or natural gas plants. That, in turn, could make credit and investment for large centralized power plants even harder to find.
Utilities may need to start considering serious changes to the business model they’ve kept for so long.
Image Credit : ACEEE Website