A recent paper authored by Brattle principal Ahmad Faruqui that examines the persistent slowdown of electricity sales growth beyond the Great Recession has been featured on Electricity Policy.
Despite the Great Recession ending in 2009, when the recovery of sales growth was thought to begin, normal growth in sales of electricity has not resumed. At the national level, the U.S. Energy Information Administration (EIA) has predicted growth in the sub-one percent range, down from the pre-recession average of two percent. The consensus among load forecasters of utilities around North America is for growth in the 0.7 to 0.9 percent range over the next several years.
In his paper, Dr. Faruqui identifies three primary causes that can be attributed to the slowdown in growth. First, a shift in consumer psychology among a new generation of consumers has led them to explore new technology options, which is coupled with an older generation of consumers that have become more cost-conscious due to continued economic uncertainty. Second, many utilities are increasing their spending on energy efficiency technology, prompted by directives and legislation. Third, Dr. Faruqui explains how states and the federal government continue to push ahead with aggressive revisions of codes and standards, driven in most part by environmental concerns. He also points out two new forces shaping growth trends that are in the early stages of development: 1) distributed generation, led by rooftop solar and supplemented by micro-turbines, and 2) fuel switching away from electricity.
Dr. Faruqui also outlines four potential strategies utilities can employ to respond to the challenge of declining sales growth, as well as three tactics to successfully implement a survival strategy. These tactics include: 1) a change in rate design toward one that relies on straight-fixed and variable designs, 2) improved forecasting to prevent inaccurate sales forecast models, and 3) reinventing the load and market research functions.
Dr. Faruqui’s paper was the subject of Electricity Policy’s June 12, 2013 editorial, which draws on the main points of the paper and stresses how Dr. Faruqui’s paper “doesn’t offer an instant cure, but suggests the beginnings of a path, or several paths.” It also highlights a salient point that utilities “need to choose a trajectory for the future: What kind of a utility do they want to be?”
Dr. Faruqui’s paper, “Surviving Sub-One-Percent Growth,” and the Electricity Policy editorial can be downloaded using the link below.