Electricity Demand Disconnecting from Economic Growth

Here is an interesting piece over at the EIA Web site about the growing disconnect between demand for electricity and overall growth of the US economy.

Here’s the graph that accompanies the article:

And the explanation:

As suggested by data over the past 60 years, EIA’s Annual Energy Outlook 2013 Reference case projections through 2040 show that U.S. electricity use and economic growth will continue to be linked. However, the long-run trend of slowing growth in electricity use relative to economic growth will also continue: the rate of projected growth in electricity use will be less than half the rate of economic growth. In particular, EIA does not expect any sustained return to the situation between 1975 and 1995, when the two growth measures were nearly equal in value, or the earlier period in which the growth rate in electricity use far exceeded the rate of economic growth.


The growth in electricity demand has been significantly slower than GDP growth for decades. In the 1950s, 1960s, and 1970s the use of electricity often increased more than 5% per year. It then slowed to 2% to 3% per year in the 1980s and 1990s, and over the past decade it has fallen to less than 1% per year. Over the next three decades, electricity use is expected to continue to grow, but the rate of growth slows over time. The factors driving this trend include slowing population growth, market saturation of major electricity-using appliances, improving efficiency of several equipment and appliance types in response to standards and technological change, and a shift in the economy toward less energy intensive industry.

As I have pointed out in the past, this shift in demand growth trends is playing havoc with the US electricity industry.

2 thoughts on “Electricity Demand Disconnecting from Economic Growth

  1. Seems to me the projections are based on thin air, or maybe vacuum. Why should GDP continue forever at 2%? Given the realities of overpopulation, unsustainable rates of exploitation of both renewable and non renewable resources, climate change, the hazards to the economy of corporate rule, and the evidence of breakdown of virtually all our systems, I’d wager the trend will continue sharply downward for both GDP and electricity demand. I’ll bet we’ll also see the grid going down more frequently and the outages lasting longer and longer, until the day arrives when the cost of providing electricity rises above the profits, and then it won’t be worth fixing–to the owners–and will be abandoned, first in the rural areas.

    • I agree with your other considerations for the future, but they are not included in the EIA analysis. The EIA is making a statistical comparison between GDP growth and electricity demand growth. When you are dealing with statistical projection, you have to eliminate unpredictable contingencies and compare only the basic elements that have driven change in the past. That is EIA’s reference to “base case” projections.

      Statisticians and forecasters have a pretty simple rule of thumb – your forecast trends will generally reflect the present situation, extrapolated out into the future. If the near term projection (for the next year or so) is 2% growth, that is basically what your long term forecast will be. Statistical forecasting is biased toward the immediate past because (1) the past is the only real data we have and (2) the most recent data is likely to be based in conditions that are the closest fit with the present and near future.

      The problem comes in when non-statisticians treat forecasted trends as reality, such as when PJM simply plugs them into a formula for future electricity demand forecasts. It would be much better to have a range of forecasts within a band of best to worst case scenarios.

      So the main point to take away from this EIA article is not that GDP growth might be one number or it might be another, but, as the EIA points out, a past trend where the two growth rates were essentially the same is now no longer true.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s