exploring the implications of low growth in electricity demand

www.eia.gov U.S. Energy Information Administration Independent Statistics & Analysis

For 2014 NYISO Energy Conference June 24, 2014 | New York, NY By Adam Sieminski, EIA Administrator

Exploring the implications of low growth in electricity demand

In EIA’s AEO2014 Reference Case, growth in electricity use slows, but still increases by 29% from 2012 to 2040

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

percent growth (3-year compounded annual growth rate)

Source: EIA, Annual Energy Outlook 2014

2

History

Projections

2012

electricity use

GDP

Annual Growth

Period Electricity use GDP 1950s 9.8 4.1 1960s 7.3 4.4 1970s 4.7 3.2 1980s 2.9 3.0 1990s 2.4 3.2 2000-2012 0.7 1.8 2013-2040 0.9 2.4

2014 NYISO Energy Conference June 24, 2014

What might a low electricity demand growth future look like? • Assumptions used to achieve low electricity demand growth:

– Applied best available technology to buildings, and layered on greater industrial motor efficiency

– Assumptions are technically achievable but not necessarily cost-effective at this time

• Shifts in demand are accompanied by changes in patterns of investment and prices

– Consumers spend less for electricity, and utility bill savings nearly balance households’ increased costs for more efficient equipment, insulation, etc.

– From 2012-2040, electricity generation capacity additions decline by about 50% relative to the AEO2014 Reference case, while retirements of fossil fuel-fired capacity more than double relative to the AEO2014 Reference case

– Lower marginal energy prices in competitive wholesale electricity markets, relative to the AEO2014 Reference case

– Declines in residential electricity generation prices are partially offset by near-term increases in transmission and distribution prices

2014 NYISO Energy Conference June 24, 2014 3

Historical and projected end-use electricity sales

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1950 2040

Reference case +21%

-6% Low Growth case

billion kilowatthours (with percent change, 2012-2040)

Source: EIA, Monthly Energy Review and Annual Energy Outlook 2014

4 2014 NYISO Energy Conference June 24, 2014

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1950 2040

0%

+27%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1950 2040

+30%

+8%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1950 2040

0%

+25%

Residential Commercial Industrial Res+Com+Ind

Average electricity demand growth rates vary across regions


2012 - 2040

Region Reference case

Total U.S. 0.80% New York City 0.10% Long Island 0.10% Upstate New York 0.20% New England 0.30% Eastern Wisconsin 0.50% Mid Atlantic 0.50% Lower Michigan 0.50% Great Lakes 0.60% Mississippi Basin 0.60% Northern Plains 0.70% Central Plains 0.70% California 0.90% Texas 1.00% Florida 1.00% Mississippi Delta 1.00% Alabama/Georgia 1.00% Tennessee Valley 1.00% Virginia Carolina 1.00% Southern Plains 1.00% Northwest 1.00% Arizona/New Mexico 1.30% Rocky Mountain 1.30%

2012 - 2040

Region Low Growth case

Total U.S. 0.00% New York City -0.70% Long Island -0.70% New England -0.60% Upstate New York -0.60% Lower Michigan -0.40% Eastern Wisconsin -0.30% Mid Atlantic -0.30% Great Lakes -0.30% Mississippi Basin -0.20% Northern Plains -0.10% Central Plains -0.10% Florida 0.10% Alabama/Georgia 0.10% Virginia Carolina 0.10% Texas 0.20% Mississippi Delta 0.20% Tennessee Valley 0.20% Southern Plains 0.20% California 0.20% Northwest 0.40% Arizona/New Mexico 0.50% Rocky Mountain 0.50%

Utility bill savings nearly balance households’ increased costs for more efficient equipment, insulation

0

100

200

300

400

500

600

2010 2015 2020 2025 2030 2035 2040

REDUCTION in annual electricity bills

INCREASE in annual equipment and housing shell expenses

About 2/3 of the reduced electric bills are attributable to lower consumption; lower per-kWh prices explain the remaining 1/3

Change in per-household expenditures and electric bills relative to Reference case 2012$ per year



Year Reference Low Growth 2020 $1,434 $1,228

2040 $1,535 $1,076

Table: Annual per household expenditures on electricity (2012$)

More fossil capacity is retired in the Low Growth case


0

20

40

60

80

100

120

2012-2020 2012-2040 2012-2020 2012-2040


Coal Natural Gas/Oil

Nuclear Renewable / Other

U.S. electric power sector capacity retirements gigawatts (cumulative)

Reference case Low Growth case


Capacity additions decline dramatically in the Low Growth case

0

5

10

15

20

25

30

2010 2020 2030 2040

Other Renewables Solar

Wind Natural gas/oil

Nuclear Hydro / Other

Coal

0

5

10

15

20

25

30

2010 2020 2030 2040

Reference case

Low Growth case

U.S. electricity generation capacity additions gigawatts

Capacity under construction is still assumed completed Projected renewable builds primarily occur in

the buildings sector; power sector builds are much lower and are primarily natural gas-fired


History Projections

History Projections

2012

2012

In the Low Growth case, total carbon dioxide emissions from the electric power sector in 2040 are 22% below the Reference case


Total carbon dioxide emissions million metric tons CO2


0

500

1,000

1,500

2,000

2,500

3,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

500 million metric tons

2012 History Projections

Reference case

Low Growth case

10

Gas generation grows much more slowly in the Low Growth case U.S. electricity net generation trillion kilowatthours


0

1

2

3

4

5

6

1995 2010 2025 2040

History

Reference case

Natural gas

Renewables

Nuclear

Coal

2012

30%

12%

19%

37%

35%

16%

16%

32%

Natural gas

Nuclear

Coal

44%

14%

14%

27%

Natural gas

Renewables

Nuclear

Coal

24%

21%

19%

35%


0

1

2

3

4

5

6

1995 2010 2025 2040

Low Growth case

2012

32%

19%

18%

31%

Natural gas

Renewables

Nuclear

Coal

Projections History Projections

30%

12%

19%

37%

End use sales are flat in the Low Growth case, but direct use grows due to technology assumptions Total electricity use billion kilowatthours


0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2025 20400

1,000

2,000

3,000

4,000

5,000

6,000

2010 2025 2040

2012 Reference case Low Growth case

Industrial

Commercial

Residential

Direct Use

Industrial

Commercial

Residential


2012

History Projections Projections History

Sales to the grid

Projected end-use electricity prices are lower in the Low Growth case Average end-use electricity price, all sectors 2012 cents per kilowatthour


9

9.5

10

10.5

11

11.5

2010 2015 2020 2025 2030 2035 2040

2012

History Projections

Reference case

Low Growth case


Declines in residential electricity generation prices are partially offset by near-term increases in transmission and distribution prices


3

4

5

6

7

8

9

2010 2015 2020 2025 2030 2035 2040

2012

History Projections


Average electricity price components, residential sector 2012 cents per kilowatthour

Reference case

Low Growth case Generation price

Transmission and distribution price

In the long term, lower demand growth leads to lower energy prices in competitive wholesale electricity markets

0

20

40

60

80

100

2012 2020 2030 2040

California

Average marginal energy prices 2012$ per megawatthour

Source: EIA, Annual Energy Outlook 2014, electricity model regions averaged to approximate existing ISOs/RTOs 1 The “Midwest” region combines the electricity model regions used to approximate the Midcontinent ISO (MISO) and the Southwest Power Pool (SPP).


0

20

40

60

80

100

2012 2020 2030 2040

New York 0

20

40

60

80

100

2012 2020 2030 2040

New England

Low Growth

Reference

0

20

40

60

80

100

2012 2020 2030 2040

Texas 0

20

40

60

80

100

2012 2020 2030 2040

Midwest1

0

20

40

60

80

100

2012 2020 2030 2040

PJM

Delivered coal and natural gas prices are reduced in the Low Growth case

0

5

10

2005 2010 2015 2020 2025 2030 2035 2040

coal

Reference case

Average delivered fuel prices to electric power plants 2012$ per million Btu



History Projections

2012

natural gas

Reference case

Low Growth case

Low Growth case

EIA can run what-if scenarios and analyses which can help explore the various implications of grid modernization and fuel switching


• Fuel Switching – Drivers

• Levelized electricity costs • Plant retirements – Accelerated retirements cases • Changes in demand – Low demand growth case • Policies – Reference case vs. Extended Policies case

– Implications • Projected changing electricity mix • Projected capacity additions

• Grid Modernization – The NEMS model includes regional T&D with capacity limits and implicit cost

assumptions – T&D losses could be varied

For more information

U.S. Energy Information Administration 17

U.S. Energy Information Administration home page | www.eia.gov

Annual Energy Outlook | www.eia.gov/aeo

Short-Term Energy Outlook | www.eia.gov/steo

International Energy Outlook | www.eia.gov/ieo

Monthly Energy Review | www.eia.gov/mer

Today in Energy | www.eia.gov/todayinenergy

State Energy Portal | www.eia.gov/state

Drilling Productivity Report | www.eia.gov/petroleum/drilling/

http://www.eia.gov/

http://www.eia.gov/aeo

http://www.eia.gov/steo

http://www.eia.gov/ieo

http://www.eia.gov/mer

http://www.eia.gov/todayinenergy

http://www.eia.gov/state

http://www.eia.gov/petroleum/drilling/

18

Supplementary slides


Low Growth case uses a combination of assumptions that result in zero growth in end-use electricity sales • AEO2014 Best Available Demand Technology case

assumptions for the buildings sectors – Future equipment purchases assume only the most efficient model is available

for each technology

– Consumers accept longer payback periods for efficiency investments

– Residential new construction: shell efficiency is assumed to be code compliant and built to the most efficient specification after 2013

– Residential existing housing stock: shell efficiency improves by 32% for heating and 12% for cooling by 2040 vs. 17% and 6% in the Reference case

– Commercial: shell efficiency improves by 23% for new construction and 10% for existing buildings by 2040 vs. 15% and 7% in the Reference case

• Reduction in industrial motor electricity use – Industrial motors for compressors, fans, and pumps: assumed reduction in

motor average energy usage ranges from 10% (for 1-5 hp class) up to 32% (for 101-200 hp class)


Average levelized electricity costs for new power plants, excluding subsidies, in the Reference case, 2020 and 2040

20

0 2 4 6 8 10 12

Natural gascombined cycle

Wind

Advancednuclear

Coal (IGCC)

A

Natural gascombined cycle

Wind

Advancednuclear

Coal (IGCC)

new power plant costs 2012 cents per kilowatthour


Incremental transmission

costs

Fixed costs

Variable costs, including fuel

Capital costs

2040

2020


Accelerated power plant retirements and nuclear side case assumptions

21

• Accelerated Coal Retirements case – Starts from AEO2014 High Coal Cost case, with coal prices 68% above Reference case in

2040 – Annual O&M increase of 3% in real terms from 2012 to 2040, compared to no increase in the

Reference case

• Accelerated Nuclear Retirements case – No subsequent license renewals for nuclear units past 60 years compared to the Reference

case assumption that license renewals allow units to operate beyond 60 years – Annual O&M increase of 3% in real terms from 2012 to 2040, compared to no increase in the

Reference case

• Accelerated Coal and Nuclear Retirements case – Combines assumptions from the previous two cases

• Low Nuclear case – Same assumptions as the Accelerated Nuclear Retirements case plus

• High Oil and Gas Resource case assumptions, resulting in lower natural gas price trajectory

• No Sunset case assumptions, resulting in more renewable energy generation


Natural gas and renewables capacity additions are expected to fill the void left by accelerated coal and nuclear retirements through 2040

22

0

100

200

300

400

500

Reference Accelerated Coaland NuclearRetirements

Accelerated CoalRetirements

Accelerated NuclearRetirements

cumulative capacity additions gigawatts


Renewables

Coal

Natural gas

Nuclear


Cumulative retirements of coal-fired generating capacity in four cases

Natural gas and renewables generation share increases through 2040 in accelerated retirement cases but overall electricity demand decreases slightly due to higher natural gas prices

23

0

1,000

2,000

3,000

4,000

5,000

6,000

Reference Accelerated Coal andNuclear Retirements

Accelerated CoalRetirements

Accelerated NuclearRetirements

net electricity generation billion kilowatt-hours


Petroleum

Renewables

Coal

Natural gas

Nuclear


Delivered natural gas increases modestly across all cases by 2040 due to increase in natural gas demand for generation

24

0

2

4

6

8

10

2012 2025 2040

ReferenceAccelerated Nuclear RetirementsAccelerated Coal RetirementsAccelerated Coal and Nuclear Retirements

natural gas prices 2012 dollars per thousand cubic feet



U.S. electricity net generation trillion kilowatthours

Source: EIA, Annual Energy Outlook 2014 Early Release

25

0

1

2

3

4

5

6

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

13%

Over time the electricity mix gradually shifts to lower-carbon options, led by growth in natural gas and renewable generation

30%

19%

37%

12%

1% Nuclear Oil and other liquids

Natural gas

Coal

Renewables

2012 Projections History

16%

16%

32%

35%

<1%

1993

11% 13%

19%

53%

4%

30%

17%

37%

15%

1%

2025 2040


26

Changing electricity generation mix in AEO2014 reference case and extended policies side case

U.S. electricity net generation trillion kilowatthours

0

1

2

3

4

5

6

1995 2010 2025 20400

1

2

3

4

5

6

1995 2010 2025 2040

2014 Reference Case

2012

Extended Policies Case

28%

23%

15%

32%

Natural gas

Renewables

Nuclear

Coal

1%


30%

12%

19%

37%

Natural gas

Renewables

Nuclear

Coal

35%

16%

16%

32%

Source: EIA, Annual Energy Outlook 2014 Early Release and Preliminary side cases

Additional Analysis Case Definitions

27

$10 and $25 Carbon Dioxide Allowance Fee Cases Applies a price for CO2 emissions throughout the economy, starting at $10 or $25 per metric ton in 2015 and rising by 5 percent per year through 2040. Extended Policies Case Assumes extension of all existing energy policies and legislation that contain sunset provisions, except those requiring additional funding (e.g., loan guarantee programs) and those that involve extensive regulatory analysis, such as CAFE improvements and periodic updates of efficiency standards. Also includes extension of the $1.01 per gallon ethanol subsidy and $1.00 per gallon biodiesel subsidy to the end of the projection period. Low Electricity Demand Growth Case Assumes that all future equipment purchases in the residential and commercial sectors are made from a menu of technologies that includes only the most efficient models available in a particular year, regardless of cost. Residential building shells for new construction are all assumed to be code compliant and built to the most efficient specifications after 2013, and existing residential shells have twice the improvement of the Reference case. New and existing commercial building shell efficiencies improve 50 percent more than in the Reference case by 2040. Assumes greater improvement in industrial motor efficiency. 2014 NYISO Energy Conference

June 24, 2014

28

Changing electricity generation mix in Reference case and carbon dioxide fee allowance side cases

U.S. electricity net generation

0

1

2

3

4

5

6

1995 2010 2025 2040$0

$20

$40

$60

$80

$100

0

1

2

3

4

5

6

1995 2010 2025 2040$0

$20

$40

$60

$80

$100

0

1

2

3

4

5

6

1995 2010 2025 2040

2014 Reference Case

2012

Natural gas

$10 CO2 Allowance Fee Case

Renewables

Nuclear

Coal

34%

23%

22%

19%

Natural gas

Renewables

Nuclear

Coal

32%

27%

38%

1%

30%

12%

19%

37%

Natural gas

Renewables

Nuclear

Coal

35%

16%

16%

32%

trillion kWh 2012 $/ton

$25 CO2 Allowance Fee Case

2012 $/ton trillion kWh


Petroleum and other

CO2 fee 2012 $/ton

CO2 fee 2012 $/ton

trillion kWh


Gas-fueled units account for most projected capacity additions in the AEO2014 Reference case

29

U.S. electricity generation capacity additions gigawatts

Source: Form EIA-860 & EIA Annual Energy Outlook 2014

-10

0

10

20

30

40

50

60

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Other Renewables

Solar

Wind

Oil and Natural Gas

Nuclear

Hydro / Other

Coal

History Projected


Growth in buildings sector distributed generation contributes to the shift toward natural gas and renewable generation

30

0

20

40

60

80

100

120

140

2005 2010 2015 2020 2025 2030 2035 2040Fuel cell

History 2012

Wind

Solar PV

Microturbine

Gas engine

Projections

Gas turbine

electricity net generation billion kilowatthours per year


• Growth in PV generation expected to slow when the federal investment tax credit expires at the end of 2016

• Buildings sector natural gas distributed generation technologies are modeled as CHP systems

• Buildings PV averages 6.9% growth per year 2012-2040

• Natural gas-fired CHP

generation experiences 8.3% growth per year bolstered by commercial sector use of microturbines


exploring the implications of low growth in electricity demand

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