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Energy Demand Growth Is Passé

September 23rd, 2012 by François Lévêque, Ecole des mines de Paris

While politicians are trying to figure out how to get the economy growing again, a growing number of energy efficiency experts are working equally hard to bring energy demand growth to a permanent halt. We are, of course, not talking about the developing world, but the advance economies that use large amounts of energy on a per capita basis, and by some measures, have already reached or may bed approaching demand saturation levels.

There is simply so much waste and inefficiency in how energy is currently being utilized, that modest economic growth in developed countries can be sustained with little or no increase in energy use. If it sounds impossible, or too good to be true, perhaps the following article will provide food for thought.

The future pace of electricity – or for that matter energy – demand growth is among the hot topics endlessly debated in various circles. A lot is obviously at stake depending on how it turns up. Everyone along the industry’s long value chain is keen to know if demand growth, which has been dormant since the 2008 financial crisis, will resume – and if so, when and at what pace?

The long-term growth trend in nearly all OECD countries has been downward, asymptotically approaching zero over time. The US case (see above)) is typical with the usual pumps along the way. The current official forecast by the Energy Information Administration (EIA) is 0.7% under a business as usual (BAU) scenario. At this rate, it will take roughly 100 years to double US electricity consumption – rather than 10 years or less it took in the 1950s and 60s. Per capita electricity consumption in the US has been flat or slightly falling since the beginning of the new millennium (see below).

There are, however, many reasons to believe that this anemic business as usual growth rate, can be further reduced, or perhaps eliminated altogether. Not only is this technically feasible, but by most indications, it will be cost-effective and good for the environment. There are encouraging signs that there is an increasing awareness of the sheer potential scale and overwhelming economics of energy efficiency:

• Codes & Standards – A study by the Institute for Electric Efficiency demonstrates how future demand growth can be adjusted downward simply by applying more stringent building codes and energy efficiency standards.
• Supportive regulations – US state regulators, who can be instrumental in encouraging energy efficiency, are becoming more receptive to the idea.
• Large potential – UK can cut its electricity consumption by an amazing 38% by 2030 by implementing cost-effective energy efficiency policies.
• Low hanging fruit – A survey of energy use in large buildings in New York City concluded that some buildings were using 5 times as much energy as others – suggesting the enormous potential for cost-effective energy efficiency.

To determine the scope of potential energy savings, one must start with a baseline of how much energy is currently used in each sector and for what purpose as illustrated in the UK study and the building survey in New York City. Armed with this information, it is possible to estimate how much can be saved by substituting more efficient appliances and energy using devices.

The latest edition of the EIA’s Annual Energy Outlook shows estimates of this potential for the residential and commercial sector. By simply replacing existing energy-wasting heating, cooling, ventilation, lighting, office equipment, appliances and other devices with the best available technology, significant savings can be achieved by 2035.

But beyond such physical assessments, are gradual yet powerful structural, demographic and behavioral changes that are taking place within the US and other developed economies:

First, mature and maturing economies are becoming less energy-intensive as they shift to services. Historically, roughly 1/3rd of the electricity consumed in California was used by the industrial sector. That percentage is now close to 10% – either because heavy industry has left, has become more efficient, or the sector self generates some of its power internally. By contrast, the industrial sector currently consumes 55% of electricity generated in South Korea, and an even higher percentage applies to China, considered a developing economy.

Second, aging population and changing living patterns is resulting in shrinking number of occupants per dwelling and smaller houses. This may result in higher per capita consumption levels, but lower volumetric sales per household.

Third, rising electricity costs coupled with increasing environmental awareness are resulting in more frugal and energy-conscious consumers.

Finally, monitoring and managing energy consumption is becoming easier with advancements in technology.

One example of how demographic changes may affect electricity consumption is the size of average residential dwellings. The average size of typical new homes built in the US, has historically increased in tandem with the growth of the economy as shown in graph on right.

As people’s per capita income increased, so did the size of the new homes. While many affluent Americans will continue to build ever-larger homes and mansions, there are powerful trends that may suggest the opposite.

In 1950, roughly 4 million Americans lived alone, according to US Census data. Today, an estimated 31 million live alone. Would a single person need or want a 2,500 square foot house even if he/she could afford it?

Currently, a third of all US households have a single occupant and over 5 million adults below the age of 35 live alone. Many of these people prefer to live in smaller homes or apartments closer to work and to urban amenities they enjoy.

Bigger homes in distant suburbs still appeal to many, but not all Americans. There are reasons to speculate that the historical trend toward larger new homes may not resume when the current economic recession ends. Would smaller households, smaller dwellings, better insulated homes, and more efficient appliances lead to lower electricity consumption?

Today, the average US house owns more than 2.5 TVs, and an increasingly number of these are flat-screen TVs, which are getting bigger in size and are electricity guzzlers – the second biggest contributor to the rise of electricity consumption in the residential sector in recent years. But if a growing number of homes have a single occupant, how many more will be needed, and more important, how many will be on in a given house if there are fewer occupants?

F.P. Shioshansi

This post is extracted from EEnergy Informer, September 2012 issue.

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