Energy Insider: Electricity

Will Environmentally Beneficial Electrification Save Electric Utilities From the Death Spiral?

by Bob Shively, Enerdynamics President and Lead Facilitator

Recent years have been tough on U.S. electric utilities. These companies historically drove earnings through increased electric usage. Through the 1990s and early 2000s electricity demand grew steadily with occasional bumps during economic downturns. But since the recession in 2008, utility sales in the U.S. have remained flat even though the economy has grown by more than 10%.

Source:  EIA website

Various factors have contributed to flat demand. The most important has been increased efficiency in energy use – not too long ago we were using 100W incandescent light bulbs; now we use 14W fluorescent bulbs or 12W LEDs. Also contributing is a shift in economic activity from industrial output to services, and, in some regions, growing distributed energy resources (DERs) like rooftop solar.

Some observers suggest that utilities will never again see steady load growth. Jim Rogers, the former CEO of Duke Energy has been quoted as saying: “I think the demand for electricity is going to be anemic, at best. Perhaps more likely than not, the demand for electricity will actually decline.”

Indeed, the latest forecast from the Energy Information Administration (EIA) forecasts a 0.8% average annual growth between now and 2050.

                 Source: EIA Annual Energy Outlook 2017

Declines in sales coupled with growing economic opportunities for rooftop solar and other DERs has utilities worrying about the so-called utility death spiral. Utilities with primarily fixed costs have sales declines that result in rate increases; this encourages more load to leave the system, which results in more rate increases. It's an ultimate deadly spiral of business decline.

Environmentally beneficial electrification

In recent years, environmentalists have encouraged the electric industry to focus on energy efficiency – attaining the same end-user benefits while consuming less energy. The concept was that less consumption meant less generation, which meant less environmental impact. This exacerbates the potential for a death spiral. But a new paradigm is now emerging. With the current priority to reduce greenhouse gas (GHG) emissions and slow global climate change, the concept of emissions efficiency rather than energy efficiency is taking shape. This concept is outlined in a recent Electricity Journal article titled “Environmentally beneficial electrification: The dawn of 'emissions efficiency.'”

Emissions efficiency means providing consumer benefits for the least amount of negative environmental outcomes, including the least amount of GHG emissions. It concludes that moving three key energy uses – vehicle transport, space heating, and water heating – from fossil fuels to electricity can provide significant environmental benefits while continuing to fulfill consumer desires.

How environmental benefits work

The authors of the above-mentioned article considered a hypothetical electric utility with 100,000 consumers and a generation mix of 50% coal-fired, 40% combined-cycle gas turbine, and 10% gas-fired combustion turbine. These customers were assumed to use a mixture of fuel oil, electric resistance heaters, electric heat pumps, propane, and natural gas to heat their homes and water. Gasoline and diesel powered their cars. Upon the upgrades shown below, GHG emissions were modelled to drop by 25%.

Two things are worth noting in the above model:

  • Penetration of electric vehicles (EVs) is small.
  • Significantly more emissions reductions could be achieved by converting the electric generation mix to utilize zero-emissions generation like wind, solar, or nuclear.

Will electrification result in significant electric load growth?

The concept of beneficial electrification creates new growth opportunities for electric utilities. Electric vehicles (EVs) utilize electricity in the range of 25 to 35 kWh per 100 miles. A homeowner driving an EV 10,000 miles in a year would add 2,500 kWh of energy consumption to his bill. With a typical U.S. residential account currently using about 10,000 kWh per year, the addition of an EV could increase that home’s electric usage by 25%. Adding heat pumps for water heating and space heating might add an additional 4,000 kWh per year. The net total increase in electric usage would be 65% — all while significantly reducing the GHG emissions from the home. 

Given these numbers, it seems electric utilities have much to gain by touting the environmental benefits of electrification. And this may be the big opportunity that can save these companies from the utility death spiral.  

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