Bad news for utility revenues: Demand growth will be only half what it's been

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By: SGN Staff

Quick Take: Everywhere you look there are new threats to the utility business model. On one side is the very real danger that utilities could soon be hollowed out, stripped of their high-value customers and left only with the low-margin, hard-to-serve customers. And now comes the news that growth in demand will be only half what had been expected just a few years ago. As you'll read below, two forces have converged – the recession and energy efficiency. - By Jesse Berst

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Demand for power in the U.S. will grow by a little more than 1% through the next 20 years. That's half of the 2% growth rate over the past two decades, according to energy consultant Wood McKenzie who was quoted in an article in Platts this week.

Prajit Ghosh, senior analyst for North American Power Research, also quoted in the article, said "Given the recessionary impacts on gross domestic product, industrial activity, real estate and unemployment, all coupled with a possible behavioral drag on energy demand, demand growth expectations have been reduced to much lower levels." His comments were from a statement on a group report.

An additional reason for the slowdown in demand, McKenzie said, is energy efficiency. He noted that since 2008 state and federal policies encouraged investments in energy efficiency programs that contribute to the reduction in demand.

Also expected to influence a reduction in power demand: the "potentially worsening Eurozone crisis" and growth in distributed generation.

But Ghosh also pointed to the natural gas market, which has been a growing market at the expense of coal generation, as a mitigating factor. He said the combination of lower gas prices and environmental policy should support continued favorable conditions for natural gas generation in the years to come, which would make up for the slower growth in demand.

Jesse Berst is the founder and chief analyst of Smart Grid News.com, the industry's oldest and largest smart grid site. A frequent keynoter at industry events in the U.S. and abroad, he also serves on advisory committees for Pacific Northwest National Laboratory and the Institute for Electric Efficiency. He often provides strategic consulting to large corporations and venture-backed startups. He is a member of the advisory boards of GridGlo and Calico Energy Services.

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