In the past year, total U.S. electricity sales fell a remarkable 1.1 percent. The U.S. Energy Information Administration reports that this is the fifth drop in the past eight years.
Electricity demand growth has been flat for a decade while GDP is up nearly 15 percent. While weather plays a role in whether demand goes up or down in a given year, state and federal energy efficiency policies deserve a lot of credit for the long-term flattening of demand, as we’ll see.
I initially wrote about this new “decoupling” between electricity consumption and GDP growth in early February based on the release of the 2016 Sustainable Energy in America Factbook by Bloomberg New Energy Finance (BNEF).
EIA, however, has the most accurate and comprehensive data on U.S. electricity supply and demand. And this decoupling certainly deserves further examination since it is an unprecedented achievement in modern U.S. history, appears likely to continue, and has broad implications for energy and climate policy. For instance, this decoupling is a key reason we’ve been able to cut total U.S. greenhouse gas emissions in the past decade, since flat electricity demand meant that the explosive growth in renewables and natural gas power squeezed out dirty coal.
Efficiency Is A Driving Force Behind Flat Electricity Demand
The central question: Why have U.S. electricity sales been virtually flat for a decade, while demand rose at a 2.4 percent annual growth rate in the 1990s? Total U.S. electricity sales in 2015 were actually lower than 2007 sales. During that time, industrial consumption declined, while both residential and commercial electricity consumption were virtually flat “despite growth in the number of households and growth in commercial building space.”
The EIA explains that “Electricity-intensive industries have grown at about the same pace as the rest of the industrial sector, and efficiency improvements in these industries have contributed to declining electricity sales to industry.” A key point is that industrial production in 2015 was roughly at 2007 levels while industrial electricity demand is down some 7 percent.
As for the commercial sector, EIA notes “Standards to improve efficiency for major end uses such as lighting and space conditioning equipment have helped to moderate growing commercial building energy demand as electricity demanded for ventilation and data center servers has increased.” Flat demand in an economy driven by soaring usage of the internet and IT equipment may seem especially unexpected — but as I wrote in a 1999 analysis, a true Internet-based economy was always likely to be more efficient.
The residential sector is the single biggest consumer of electricity, accounting for nearly 38 percent of total use between 2007 and 2015. On the one hand, EIA notes “The 2008–09 recession slowed new-household formation and resulting electricity demand.” On the other hand, “The continued population shift to the South and West has implications for space heating, as electricity is a more common space heating fuel in the South and West,” and it “has implications for air conditioning, as the buildings in these warmer climates require more cooling.” Efficiency measures, such as the phase-out of inefficient light bulbs that started in 2012, made the difference.
“Some improvements in energy efficiency have been market driven, reflecting the interest of consumers and businesses in reducing their electricity consumption and expenditures,” explains the EIA. “Other improvements, mainly related to electricity use in homes and commercial buildings, have been driven by federal and state policies.”
How State And Federal Policies Gave Us An Efficiency Revolution
The key federal policies include energy efficiency standards for a variety of home appliances, commercial-sector equipment, and lighting. I discussed the state policies driving efficiency in my post on the BNEF Sustainable Energy Factbook. I’ll briefly summarize that here since this story remains so unheralded by the media.
Utility efficiency spending is up four-fold since 2006. The result, BNEF explains, is that “since 2007, incremental efficiency achievements have risen 17% on average annually”
With very little fanfare, “The key policy story of the past decade has been the uptake of EERS [Energy Efficiency Resource Standards] in US state targets and decoupling legislation among US states,” as BNEF documents.
Utility decoupling means changing state regulations to decouple a utility’s revenues from its sales (of electricity). Historically, utilities were highly incentivized to sell more of their product to make more money. That in turn disincentived them from investing in energy efficiency measures. Decoupling removes that disincentive. With EERS, “utilities are required to implement energy efficiency measures, typically among their consumers, equivalent to a target volume of kWh (usually specified as a fraction of the previous year’s kWh sales).”
Thus, utility decoupling, particularly when combined with EERS, drives investments in energy efficiency, which in turn helps the nation as a whole decouple electricity use from economic growth. Note that United States has achieved this decoupling even though most states have not enacted the optimum policies for promoting efficiency.
In other words, when the U.S. as a whole gets truly serious about energy efficiency, we can certainly achieve more savings than we already have — and keep it up for a long, long time. A 2015 study of states as diverse as California, Vermont, Idaho, and Oregon clearly shows that the amount of efficiency investment and electricity savings soars after utility decoupling is enacted.
“In 2015, California passed a law to increase building energy efficiency 50% by 2030 for both residential and non-residential properties,” BNEFnotes. So the state with the strongest — and longest standing — building efficiency measures knows it can still make its buildings vastly more efficient. That’s why energy efficiency is the low-hanging fruit that grows back. The efficiency resource never gets exhausted because technology keeps improving, smart control systems keep getting smarter, and knowledge spreads to more and more people.
The decoupling of electricity sales from economic growth is thus likely to continue for the foreseeable future. Indeed, there is another emerging factor that will reduce utility sales — rooftop solar energy owned by the customer. The EIA has just begun to track this (see here). EIA staff told me that it does not appear that their electricity sales data includes most of customer-generated renewable electricity. Commercial and residential rooftop solar is growing rapidly because it lowers electricity bills in more and more of the country as solar prices continue steadily down the learning curve.
As energy efficiency and renewable energy investments keep growing, while the prices of those technologies keep dropping, it becomes cheaper and cheaper for us to meet ever tougher carbon pollution targets — as we agreed to do in at the Paris climate talks in December. We appear to have entered the long-awaited era where carbon dioxide emissions can continue declining while overall energy bills remain either flat or also continue declining.