Declining Demand — Power Companies’ Worst Nightmare Has Come True

There is always lots of talk in the media about the growth of renewable power generation or the price war between coal and natural gas.  This issues are usually framed as the big drivers of change in the US electrical system.  But I think the problem of US electricity companies and regulators goes beyond these relatively superficial discussions.

As we saw in the PATH fight, the factor that is really killing new capital investment in the US electrical industry is declining electrical demand.

Here is a graph of historical US electricity generation from 1950 to 2010 that I stole from the Rocky Mountain Institute’s Web site.  I have added the straight line and shaded area:

As you can see, the rate of growth in US electricity generation really took off between 1950 and 1970, but began to slow down after 1970.  In 2006, generation declined dramatically.  I added the straight line and shaded area to indicate where US generation would be today, if the pre-1970 rate of growth had continued.

Most of the coal and nuclear power plants now in service were built in the period between 1950 and 1975, roughly during the period of very rapid growth.  All of our current regulatory and engineering and business thinking about electrical generation was forged during that period.  We see the grip that this outdated thinking has on the electrical industry in their transmission line propaganda which emphasizes how we have to build more power lines “to meet rapidly rising demand” — which simply doesn’t exist.

Power companies are closing coal-fired power plants not primarily because gas is cheap right now.  They are closing coal-fired power plants because these are the oldest, most expensive plants to operate and demand for electricity is falling.  When you have more capacity than the market needs, you have to start closing plants, or you will go out of business.  That is a basic law of a capitalist economy.

So what happened in the 1970s that caused the change?  The big shock was the rapid rise in oil prices that affected the entire energy industry.  Users of electricity realized it was cheaper to invest in eliminating the need for more electricity, instead of locking themselves into rising fuel prices forever.  President Carter also established a strong federal policy that promoted conservation, innovation and national energy independence.

Despite the fact that Ronald Reagan reversed all of Carter’s energy policies and fuel prices fell in the late 1980s, electricity users continued investing in efficiency and demand reduction.  Also, some businesses figured out that there was a growing market in efficiency technologies and small scale renewable power technologies.  As you can see from the graph, this synergy between a growing customer base and increasing affordability of new technologies has had a significant impact on the US electricity market.

Here is more evidence of the impact of efficiency on residential electricity use from the DoE’s Energy Information Administration.  The graph below shows that even though the number of homes in the US has risen since 1980, total residential electricity use has remained flat, because per household electricity use has declined.  Here is a link to the full story.

The power generation industry, and its media mouthpieces, didn’t want average consumers to realize that innovation in efficiency and small scale generation was beginning the long slow process of putting power companies out of business.  The blue shaded area on the graph above tells the real story.  Giants General Electric and Siemens, sellers of huge scale power generating equipment, saw the handwriting on the wall, and have been long-time investors in new efficiency and control technologies for demand reduction and distributed renewable generation.

The operators and regulators of the US electrical system are desperately clinging to that 1950 to 1975 growth mentality.  Since the 1970s, Amory Lovins and the Rocky Mountain Institute have been documenting the change that has been happening, that the power companies want to keep hidden.   Lovins says that we need to acknowledge the real technical innovation in electricity, and we should embrace and expand that change.  Power companies want to stifle innovation, because they don’t want the public to understand that their industry is obsolete and increasingly expensive.  Here is a paragraph from the Institute’s new plan, Reinventing Fire:

Today’s electricity system faces a perfect storm of deferred major infrastructure investments, financial constraints, stagnating or falling demand, a fundamentally altered competitive landscape, and evolving environmental and health priorities. But there’s also an astonishing menu of solutions. Rapid technological progress has overcome or bypassed many previous constraints on how electricity is made and delivered. Advances in renewable generation technologies, communications and controls, distributed generating technologies, and storage have laid the foundation for a customer-centric electricity system that is renewable, distributed, and resilient.

The central challenges in adopting these advances are no longer technological or economic; they are cultural and institutional. Their resolution needs a coherent vision of how this vast industry can execute the greatest change in its history. [emphasis mine]

Lovins is exactly right.  The technological and economic changes have already happened.  The obsolete cultural and institutional thinking of the past growth era are now holding us back.  If you are focused on large scale, centralized generation, of any kind, and large scale transmission projects, you are not part of the solution.  You are part of the problem.

4 thoughts on “Declining Demand — Power Companies’ Worst Nightmare Has Come True

  1. Great synthesis of information and analysis of its meaning (as ever) – well done.

    One aspect you don’t mention but that’s so interesting is that while consumption/demand has dropped, the number of ways we use power has exploded. Think of our cellphones, laptops, tablets; our microwaves, coffeemakers, convection ovens; HD-TVs, DVRs; and those are just personal, consumer devices. If you look at how manufacturing and distribution has changed, the list goes on and on.

    If we were as careless about energy consumption now as we were in the ’50s and ’60s, I actually think your solid line would have understated the case! That’s one of the cultural reasons I think the utility industry has been so slow to change – they see the proliferation of devices, but can’t believe it isn’t accompanied by the same kind of power gluttony they’re used to.

    • Your point is well taken. AEP/Allegheny tried to use the proliferation of small electronic devices as an example of “exploding” electricity demand. They thought this marketing ploy would be effective because everyone had these devices, and they were new, so everyone would think that they were using a lot of electricity. In fact, most of these devices, including personal computers, use relatively little electricity, compared to what they are replacing. One big exception is large screen plasma TVs, which are huge energy hogs.

      Even big server farms that power the Internet, which use massive amounts of power, are replacing large amounts of energy use that used to be spent on printing, transportation and maintaining office space. The current unreliable electric grid in the US is causing many of the major companies that operate these server farms to build their own solar generating plants, like Google has, or install grid scale storage batteries, which further reduces their impact on overall demand.

  2. Coal fired power plants are being closed because of EPA actions or threatened actions, NOT because of cost per generated kWh. Check the DOE EIA web site for cost comparisons.

    • Dave, I suggest you look at current dispatch characteristics of coal fired power and wind power. When wind it blowing, it displaces all other power on the system because it has zero marginal cost. Under these conditions, large coal fired generators either become uneconomical, because they have to scale back output, or, as in NE ISO, coal fired plants are subsidized with wind farm curtailments. And if coal fired plants are doing so well, why are the EEI and ALEC mounting such a campaign against small scale distributed solar generation?

      Coal fired power plants are not being closed by EPA actions. EPA actions are late according to the original timetables established by the Nixon administration in the Clean Air Act. The fact is that coal fired power has major health impacts and has imposed massive health costs on the rest of the US. The delay in EPA enforcement of the clear mandates of the Clean Air Act has amounted to the largest subsidy that coal fired power has ever received in the US.

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