The US Energy Information Administration (EIA) predicts that electricity growth will average 0.7% per year through 2040.
If this winds up to be true, this will be quite an historic long-range trend for the electric industry. Historically, electricity growth in a country had strong correlation with economic growth, typically measured by Gross Domestic Product (GDP). In the 1950’s and 1960’s, while the US economy experienced high growth, it wasn’t uncommon to electricity usage increases of 6 – 8%.
Such days of high growth may not be seen again in the next thirty years, if the EIA is correct. In fact, in 3 out of the last 4 years, electricity growth was negative. The poor economy certainly had a major influence on this.
But there are other longer-term drivers behind this trend. The investments that have been in the energy efficiency sector, but public and private, are having a real impact. Everything from more efficient appliance standards, to increasing penetration of technologies such as adjustable speed drives and compact fluorescent lighting (with more efficient LED’s on the way), to building automation and control systems are reducing electricity’s growth rate. Also, the decrease in the nation’s manufacturing base continues to reduce electricity growth. This was felt as early as the 80’s and 90’s in locations like the Midwest, and its reach has continued to other areas of the country.
The impact on the electric distribution industry can be substantial. Smaller increases in electricity usage means smaller top-line revenue for distribution organizations. As with all other organizations, if new sources of revenue compensate for the slow growth, then organization’s management looks to make the cost base consistent with the revenue base. Cost-cutting and productivity measures become important in these environments.
No doubt, there are other reasons why a distribution organizations cost basis may grow in such in an environment. Two of the largest are the need to re-invest in system infrastructure, as the system ages and reliability needs to be maintained, and de-coupling ratemaking mechanisms, which can provide distribution organizations a financial incentive for reducing electricity usage.
Despite these mitigating factors, for some distribution organizations in the US, we can expect to see:
· Reduced capital expenditures and operating expenditures
· Productivity initiatives throughout an organization, leveraging growing organizational technologies such as consolidation of IT and OT systems, mobile solutions, and analytics projects
· Distribution system efficiency improvements, such as volt/VAR optimization
