How Energy Efficiency Programs and Policies Are Driving Low Load Growth

by Bob Shively, Enerdynamics President and Lead Instructor

The U.S. gross domestic product (GDP) has increased 9% since 2008, yet electricity use has not increased at all. In our last blog post, we looked at factors that are contributing to the nation’s stagnant electric load.

The primary factor is strongly increasing energy efficiency. The Bloomberg New Energy Finance Sustainable Energy in America 2015 Factbook reports that in the last decade states have dramatically increased policies that support energy efficiency such as energy efficiency resource standards (EERS) and revenue decoupling that removes incentives for utilities to sell more power.

The result has been a more than three-fold increase in utility spending on energy efficiency programs with over $5.8 billion spent in 2013. If public and private energy savings performance contracts are added in, the spending on efficiency was close to $14 billion in 2013.

In addition, the Obama Administration has created significant new efficiency standards for federal government buildings, and the defense department has pushed efficiency spending on military facilities. We are beginning to see significant growth of distributed generation such as solar photovoltaics and a new wave of combined heat-and-power projects that reduce net loads seen by the utility.

Industrial electric use in the last five years has declined by 3% while the U.S. Industrial Production Index has increased by 2.5%. This suggests that industrial growth does not drive electric load growth as significantly as it once did. And unless it is blocked by the courts, the EPA’s Clean Power Plan will further push states to use energy efficiency as the least-cost way to reduce greenhouse gas emissions.

When looking at factors that could drive load growth such as increased EV use, growth in electric appliances, larger square footage of buildings, and climate change it is hard to imagine such factors will overcome the strong push for energy efficiency and growth of distributed generation. Indeed, when the Energy Information Administration set out its forecasts in the Annual Energy Overview 2014, it felt compelled to provide a low growth scenario that showed no load growth through 2040.

The old utility business model of expanding profits through capital spending while keeping rates low appears to be under increasing pressure. Utilities must collaborate with their regulators to find business models that work in a world of low or non-existent load growth.  Maybe loads will grow again and the work won’t be needed. But being unprepared for a zero-growth future could be an industry-wide disaster.

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Energy Efficiency Among Factors Contributing to the Nation’s Stagnant Electric Load

by Bob Shively, Enerdynamics President and Lead Instructor

The electric utility business model historically has been tied to electric load growth. As flat electric growthloads grow, utilities invest in new facilities to serve the new loads. As long as load growth can be served at a reasonable cost, rates remain stable while utility profits grow. 

But, as we pointed out in a recent blog post here on Energy Currents, the U.S. gross domestic product (GDP) has increased 9% since 2008, yet electricity use has not increased at all.

Here you can see the change in U.S. electric usage each year since 1950: 

Historically, electric use rose almost every year except for the first year in a recession. But for the latest economic downturn beginning in 2008, things look different. We have seen multiple years of reduced usage even though the economy has slowly recovered. So what is causing such stagnation and what might a lack of recent load growth mean for the future of the utility as we know it?

 Some key factors that can drive load growth up include:

  • growth in electric appliances and EVs
  • increase in square footage of homes and businesses
  • growth in industrial output
  • hotter summers and colder winters

And some factors that drive it down are:

  • increasing efficiency of homes
  • increasing efficiency of business/manufacturing
  • shift from manufacturing to knowledge business
  • growth in distributed generation behind the meter
  • cooler summers and warmer winters

Looking at these factors, it appears likely that zero load growth may be a lasting situation. The primary factor is strongly increasing energy efficiency. Next week’s post will continue this discussion by looking at how energy efficiency programs and policies are driving low load growth and what a no-load growth future may mean for the utility industry.

 

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Infographic Shows U.S. Natural Gas Flow from Source to Sector

Ever wonder where the country’s natural gas comes from and where it ends up? This infographic, based on the most recent (2013) data from the Energy Information Administration, provides a visual perspective of U.S. natural gas flow beginning with the source (green icons on the left) and traveling through to the end-use sectors (blue icons on the right).

Enerdynamics invites you to share or reuse this infographic in your own training or company materials so long as you keep the Enerdynamics logo as part of the image and please credit the source as enerdynamics.com.

 Click here to download.

U.S. Natural Gas Flow

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A Dickensian Winter in the Natural Gas Industry

by Christina Nagy-McKenna, Enerdynamics Instructor

Winter 2014-2015 is shaping up to be a study of opposites that is almost fitting of Charles Dickens’ Tale of Two CitiesCars covered with snow

In the East we’ve seen:

  • record cold temperatures
  • the second greatest snowfall on record in Boston (and winter is not over, so the record may yet be broken)
  • cumulative heating degree days from January 1 to February 20 that are 11% above normal
  • 5% more gas pulled from storage than the five-year average in the East region
  • average natural gas prices that are over $10/MMBtu since the new year

In the West, it’s a much different scene with:

  • record warm temperatures
  • a third year of drought and the first rain-less January in the history of San Francisco
  • cumulative heating degree days since January 1 that are 25% below normal
  • 7% less natural gas pulled from storage than the five-year average in the West region
  • average prices since the new year at delivery points in the West that are at or below the average Henry Hub price of $2.88/MMBtu

regional gas prices Oct 2014-Feb 2015

Yet, even with a large price disparity between East and West, there is good news to be found in the data for East Coast natural gas consumers. Compared to 2013-2014 — the treacherous winter of the Polar Vortex — natural gas prices are lower than a year ago as can be seen in the following chart.

Ave wholesale nat gas prices 2014 v 2015

Partial credit for this development belongs to the advanced winter planning done by electricity generators. In New England, where half of all power plants are fueled with natural gas, the devastating cold last year sometimes left generators with no fuel. This year power plant owners locked in natural gas and oil contracts early. ISO New England even provided an end-of-season cash-out opportunity to generators that meet its early reliability goals.

Credit also goes to the lack of extreme demand in the West and higher-than-expected natural gas storage inventories after they were greatly depleted last year. Residential gas customers benefited directly as well. Eversource Energy, a distribution utility with service territories in Connecticut, Massachusetts, and New Hampshire, has proposed cutting customer bills in Massachusetts by approximately $20 a month in March and April to better reflect the actual prices it will pay for natural gas. National Grid, the distribution utility that serves Boston and Northeastern Massachusetts, already cut rates in January and February, which saved customers an average of $20 a month.

Still, it doesn’t sit well with many people in Massachusetts that their neighbors in New York pay less for natural gas. The cost of heating a home or a business and the cost to generate electricity is higher in New England because the region lacks the capacity to deliver adequate natural gas supplies.

However, if this is indeed the case, why is a proposed new pipeline project from Kinder Morgan’s Tennessee Gas Pipeline, which would bring up to 2.2 Bcf/d of natural gas to Massachusetts, so controversial? Despite the high prices and supply constraints, customers do not want the environmental impact or the cost of building a new pipeline.  Kinder Morgan hopes to soon receive permission from the FERC to move forward with the pipeline with a goal of being operational by the end of 2018.  However, many landowners along the 180-mile route oppose the project and have publicly spoken out against it.  It seems 2015 will be a contentious year for both sides as this proposed project moves through the FERC certification process.

pipeline map NE     Source: Kindermorgan.com

Whether the Kinder Morgan pipeline project goes forward or whether another large project or series of smaller pipeline projects take its place, New England will need to add natural gas pipeline capacity to keep up with new demand and to make adjustments as it retires old nuclear and fossil fuel electricity plants and puts gas-fired plants in their place.

It is unlikely that the region can maintain its ambitious plan to retire older power plants and replace them with more environmentally benign gas-fired plants through increased energy efficiency alone. New York will need to add capacity as well if it wants a chance at lowering its average natural gas price to a range similar to that in the Midwest and Western states. In the meantime, we will ride out the remainder of Winter 2014-2015 and hope that next year the weather will not be so drastic on either coast.

Dickens never wrote “it was an average time,” but after two extraordinary winters, that may be exactly what the gas industry needs.


Footnotes and references

U.S. Energy Information Administration, “Natural Gas Weekly Update,”  February 25, 2015.

DiSavino, Scott, “As New England Freezes, Natural Gas Stays Cheap,” Reuters, March 1, 2015.

Kinder Morgan Web Site, “Tennessee Gas Pipeline Northeast Energy Direct (NED) Project,” March 3, 2015.

“Kinder Morgan Pipeline Best Energy Supply Proposal for Mass,” Lowellsun.com Opinion, February 17, 2015.

U.S. Energy Information Administration, “Natural Gas Weekly Update,”  February 18, 2015.

Newsham, Jack, “Baker Calls for Input on Paying for Gas Pipeline through Electricity Bills,” Boston Globe, February 25, 2015.

Newsham, Jack, “Everysource Aims to Cut Its Price for Natural Gas,” Boston Globe, February 23, 2015.

Serreze, Mary, “Kinder Morgan Natural Gas Pipeline Friends, Foes Gear Up for Battle in 2015; Events Planned,”  Masslive.com, January 19, 2015.

Zeller, Tom Jr., “Natural Gas Pipeline Plan Creates Rift in Massachusetts,” New York Times, July 10, 2014.

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Utility Investments in Emerging Technologies May Transform the Traditional Grid

by Bob Shively, Enerdynamics President and Lead Instructor

Utilities are often criticized for being too conservative and living in the past rather than466470105 (2) innovating to meet the future. With recent controversies over solar net metering, opposition to energy efficiency programs in some states, and opposition to the EPA’s Clean Air program, it would be easy to assume that utilities are determined to use lobbying clout to craft regulatory rules that will keep them comfortable in their historic way of doing business. But industry observers who believe this may be missing the true story.

Utility Dive recently surveyed over 400 utility executives for the State of the Electric Utility 2015 survey (available for download here).

Included in the study’s finding is the following:

Top three emerging technologies survey
It is illuminating to note that the three central generation technologies (natural gas peaking units, environmental upgrades, and carbon capture and storage) are at the bottom of this list. Meanwhile, renewables and “future grid” technologies such as storage, energy efficiency, demand response, and microgrids are popular. If utility executives indeed act on their convictions, we may see a more rapid transformation of our traditional centralized grid than many observers have envisioned.

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The Future for Utilities: More Efficiency and Less Fossil Fuels

by Bob Shively, Enerdynamics President and Lead Instructor

Enerdynamics recently released an update of its Electricity Flow infographic (click on infographic to enlarge):

2013 electricity flow infographic v3

This graphic is based on data from the Energy Information Administration and shows the input fuels, conversion losses, transmission and distribution losses, and end-use consumption through the electricity delivery chain. It is an easy way to quickly view how we in the U.S. create electricity and how we use it.

What’s interesting is to compare this 2013 data (the most recent available) to the data from five years ago, just before the recession hit.  Here are the three trends that jumped out at us when comparing 2008 to 2013 data:

1. Electric demand is flat even with increasing economic activity

electric use vs GDP

Despite a 9% increase in U.S. gross domestic product (GDP) since 2008, electricity use has not increased. This is primarily due to improvements in energy efficiency. Many people intuitively believe flat demand is due to a decrease in industrial activity and a shift in our economy to services. But in fact, industrial use has declined by 3% over the five years while the U.S. Industrial Production Index increased by 2.5%.

2. Coal-fired generation is being replaced with natural gas and renewables

change in output since 2008

Over the five-year period, the fuel used to generate electricity has changed dramatically.  Coal use declined by 20% while natural gas and renewable use increased by 24% and 31%, respectively. This trend is likely to continue as numerous coal units have recently been or are soon to be retired and as new environmental regulations make it less economical to utilize coal-fired generation.

3. A transition to a post-fossil fuel world may be beginning

fossil fuels used to generate electricity

The amount of fossil fuel energy used to generate electricity has declined by 9% while total electric output has been flat. This likely is the beginning of a long-term transition away from fossil fuels. The trend will be furthered over the next few years by increasing development of renewable projects and the opening of multiple new nuclear units in the U.S. Certainly there is still an open question of how far we can go in generating electricity from non-fossil fuels, but it is clear that a movement in that direction in underway.

As these three trends indicate, we are in the midst of a dramatic transformation in our nation’s electricity consumption and generation.

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Why Are Energy Prices Still Rising in New England?

by Christina Nagy-McKenna, Enerdynamics Instructor

In his inauguration speech on January 8, 2015, Massachusetts Gov. Charlie Baker said the following related to energy in his state:

“But as we begin the new year, families and businesses across New England are being hit with unprecedented increases in their energy and electric bills. At exactly the same time energy prices across the rest of the country are falling. This increase is being driven in large part by inadequate delivery systems, the result of poor planning and coordination.”[1]

NE natural gas supply system

Source: U.S. Energy Information Administration

High natural gas prices in the Northeast are not new or unexpected. Algonquin City Gate prices into Boston and Transco Zone 6 New York prices are consistently among the highest in the U.S. market. In 2014, 2 Bcf/d of new capacity was added to the Northeast, but most of it was not destined to help New England. Last year’s polar vortex breakdowns that blasted the Northeast in arctic temperatures exposed New England’s extreme vulnerability as natural gas spot prices climbed as high as $78/MMBtu.[2]

A graphical display of what happens during a polar vortex breakdown is shown below, with a normal vortex on the left and one that has broken down on the right. As the Northeast struggled to cope with the unexpectedly frigid weather from the two polar vortices that struck last winter, New England’s natural gas and electricity prices soared.

polar vortex breakdown

 Image Credit: NASA Earth Observatory

The underlying problem for the New England market is fairly basic: inadequate pipeline capacity. However, the problem is compounded because it leads to price spikes during peak demand for both natural gas customers and electric generators who are increasingly depending on natural gas to fuel their power plants.

Due to geological constraints, there is no locally available gas storage that would help smooth out peak demand. New England imports LNG, however, competition for LNG is global so it is often more expensive than U.S. natural gas. While imported LNG can help ease peak demand shortages, it cannot reduce overall energy costs. The solution to this myriad of issues is complicated and involves spending money to expand the current pipeline infrastructure.

Algonquin Gas Transmission and Tennessee Gas Pipeline, the largest suppliers of natural gas to the region, have already announced plans to increase pipeline capacity by 4.1 Bcf/d by the end of 2018.[3]

Pressure from the demand side will continue as New England must either replace 3,400 MW of coal, oil, and nuclear generation that will be retired by the end of 2018 or find some way to reduce its demand by that amount.[4] Natural gas-fired generation has grown in the meantime as New England replaced some of its older, fossil-fuel plants with cleaner-burning natural gas-fired plants. The graph below from ISO NE shows the rapid growth of natural gas-fired generation from 2000 to 2013 and its forecasted growth by 2020.

system capacity by fuel typeSource: ISO-NE

The growth of natural gas-fired generation in New England only puts more pressure on the constrained gas infrastructure. When spot natural gas market prices spike, it means generators also pay more for their gas, and then end-use customers pay more for their electricity. Thus, we have circled back to the problem as outlined by the new governor: Consumers in New England are paying more for energy than those in other parts of the country. The solution to build more pipeline infrastructure may not be particularly edgy, complex, or technologically exciting, but it will lead to a solution.


 Footnotes and other resources: 

[1] Text of Charlie Baker’s Inauguration Speech, January 8, 2015, The Boston Globe.

[2] Algonquin City Gate (Boston) natural gas spot price on January 23, 2014, SNL.

[3] Today in Energy: 32% of Natural Gas Pipeline Capacity into the Northeast Could be Bidirectional by 2017, December 2, 2014, U.S. Energy Information Administration

[4] Resource Mix, ISO New England, http://www.iso-ne.com

Polar Vortex Review: Natural Gas Perspectives, Adams, Briana and ICF International, 2014.

What is the ‘Polar Vortex’ Sweeping Across the U.S., and How Did it Form? The Journal.ie, January 4, 2014.

Natural Gas Weekly Update, January 28, 2015, U.S. Energy Information Administration.

Short-Term Energy Outlook, January 13, 2015, U.S. Energy Information Administration

Today in Energy: December Natural Gas Prices Spike in Boston, December 3, 2013.

Today in Energy: New England Sport Natural Gas Prices Hit Record Levels This Winter, February 21, 2014.

Today in Energy: Boston, New York City Winter Natural Gas Prices Expected to Remain High, November 24, 2014.

Today in Energy: New England Generation Fuel Mix Changes Likely as Vermont Yankee Nuclear Plant Retires, February 2, 2015.

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