Growth of Energy No Longer Directly
Coupled to Economic Growth.
What does this mean for the Industry?
Bloomberg New Energy Finance (BNEF) recently released its 2016 Sustainable
Energy in America Factbook. The most striking statistic (followed by numerous
charts and graphs) were the parting of ways between economic growth and
energy (and electricity) usage. “The U.S. economy has now grown by 10% since
2007, while primary energy consumption has fallen by 2.4%,” according to the
Factbook. The seeming cause of this divergence is improvements in energy
efficiency. While energy usage has remained flat, so has electricity usage. This
has not always been the case because electricity had a compounded annual
growth rate of 2.4% from 1990 to 2000. For most of the last 50 years’ electricity
usage tracked very closely to GDP growth.
CREDIT: BNEF
This decoupling has been an important factor in the decrease of overall
greenhouse gas emissions in the United States since 2005. Also, flat electricity
demand has meant the increased usage of renewables and natural gas power
corresponds with the decreasing usage of coal. (Explained by this 2016 Energy
Information Administrative graph below.)
U.S. power generation since 2006, showing decline of coal (light blue) as both
natural gas (yellow) and new renewables (brown) rose, while nuclear (green)
and hydro (dark blue) remain flat. Via EIA.
Energy efficiency policy and investment is the main reason behind the
decoupling of GDP growth and electricity use. “Natural gas and electric utility
spending on efficiency reached $6.7bn, up 8.1% from the $6.2bn seen in 2013;
Energy Savings Performance Contracting (ESPC) investment topped $6.4bn,”
notes BNEF in 2014.
Also according to the BNEF, “since 2007, incremental efficiency achievements
have risen 17% on average annually.”
“The key policy story of the past decade has been the uptake of EERS [Energy
Efficiency Resource Standards] in US state targets and decoupling legislation
among US states,” BNEF explains.
As Climate Progress says, “Utility ‘decoupling’ is a change in regulations that
delinks a utility’s revenues from the amount of electricity they generate and sell.
Absent decoupling, utilities (like most businesses) are highly incentivized to sell
more of their product — in this case, power — to make more money. That in turn
disincentives utilities from putting money into energy efficiency; decoupling
removes that disincentive.” BNEF states that with EERS, “utilities are required to
implement energy efficiency measures, typically among their consumers,
equivalent to a target volume of kWh (usually specified as a fraction of the
previous year’s kWh sales).”
Number of U.S. states with Energy Efficiency Resource Standards (EERS) and
decoupling legislation for electric utilities. Via BNEF, ACEEE.
Investments in energy efficiency, driven by utility decoupling paired with EERS,
has enabled electrical use to become independent of economic growth. What
is important to remember is that on the whole, the U.S. has succeeded with this
departure, but many individual states haven’t promoted energy efficiency.
States such as Oregon, Idaho, California and Vermont have clearly incentivized
energy efficiency, and there is still room in the industry when other states do the
same. Even California, which leads in efficiency policies, passed a law in 2015 to
increase building energy efficiency by 50% in 2030 for both residential and nonresidential properties.
Energy efficiency is the wave of the future- inexpensive, carbon-free, and easy
to disseminate since it doesn’t require new transmission lines. The industry is
creating new technology everyday, and more people and devices are
adapting to clean energy than ever before. This trend of energy and electricity
demand departure from the economic growth is expected to continue for the
foreseeable future- making our energy bills and CO2 emissions, perhaps,
decline.
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