To say the energy sector, and in particular, the electricity sector is going through a period of unprecedented change is putting it mildly.
Renewable energy prices continue their downward spiral and natural gas use continues to surge, while coal, the current administration’s “golden child” is heading down the tubes. And as Vox points out, amid all the changes we are seeing today, very little has been said about our stagnating electricity demand.
Why has demand for electrical power been flat?
We really need to look at a combination of things, including greater energy efficiency at the source, the growth in energy efficient appliances, the outsourcing of heavy industry and even customers who generate their own power on-site —something we will be seeing even more of as large corporations go green.
Electricity demand goes hand-in-hand with electricity consumption. And this is a big part of the equation because we are embracing energy-saving appliances and lighting. This is also why in the construction of large buildings, the facility’s electricity demand and electricity consumption are often brought up.
Here’s a quick look at demand and consumption. Electricity demand is measured in kilowatts (kW) and represents the rate at which electricity is consumed. On the other hand, consumption is measured in kilowatt-hours (kWh) and represents the amount of electricity that has been consumed over a certain time period.
Electricity is priced based on time-of-use pricing, meaning the price of electricity is dependent on the time of day. Remember, an average home consumes more electricity after the children are home from school and the family is together for the evening. In a business, the peak demand for electricity is during normal working hours when more electricity is consumed.
The case for the Tennessee Valley Authority
Needless to say, the historic shift in electricity demand has ended up in some high-profile cases, like Ohio-based FirstEnergy’s request to the Trump administration for a bailout, simply because of what some are saying is the utility company’s bad business decisions.
However, some stories don’t make the major news outlets. And a good example is the Tennessee Valley Authority. The TVA recently discovered their carefully worked out Integrated Resource Plan (IRP), that assesses what it requires to meet customer needs for the next 20 years, turned out to be out of date as soon as it was released.
In the TVA’s last IRP, completed in 2015, the utility anticipated that there would be no need for major new investment in baseload (coal, nuclear, and hydro) power plants, and projected that energy efficiency and distributed energy generation would hold down demand.
Actually, the TVA’s power load last year was down over 10 percent from a decade ago. The utility is projecting now that power demand will remain flat or even drop more in the next decade. For years, the TVA has assumed a projected growth rate of 7.0 percent a year.
However, new projections show electricity demand in 2027 will be nearly 13 percent below the peak level reached 20 years earlier in 2007.
Utility companies are headed for a day of reckoning
The TVA is a government-owned fully regulated utility. And as its planning manager told the Chattanooga Free Press, the TVA’s goals include “low cost, informed risk, environmental responsibility, reliability, diversity of power and flexibility to meet changing market conditions.”
But investor-owned utilities (IOUs), which administer electricity for well over half of Americans have an added goal, and that is to make money for their investors. They can’t make money selling electricity, that is against the monopoly rules, but they can make money by earning a rate of return on investments in electrical power plants and infrastructure.
With demand stagnant, there is no need for new infrastructure. And it goes without saying that if there are no investments, there are no profits. So, as Vox puts it, utilities are left to treading water, trying to keep from going under.
Natural gas and renewables have had a big impact on generation utilities that sell into wholesale electricity markets. Wholesale power prices are down 70 percent from 2007. This has forced a number of these companies to form mergers, while regulated utilities have responded by increasing investment in their grids.
Basically, the business model for utilities is going to have to change to come in line with reduced electricity demand, yet continue to stay up-to-date with the latest in grid technologies and the updating of infrastructure. Only a few states, New York, California, Massachusetts, and perhaps a few others have started down this path.
