electricity demand - Bloomberg New Energy Finance

SURPRISING TRENDS IN ELECTRICITY DEMAND – 27 MAY 2015
ELECTRICITY
DEMAND – THE
BLUE WHALE IN
THE ROOM
As an eight year-old schoolboy, I learned that a judicious
flick of a fountain pen can produce a lavish trail of dots of
blue ink – done purely for artistic reasons, I assure you.
By Angus McCrone
Chief Editor
Bloomberg New
Energy Finance
67GW of additional capacity, with 2GW of coal and 5GW
of nuclear.
OECD surprise
A grown-up version of this was tried by US artist
Jackson Pollock during his "drip" period in the late
The fact is that electricity consumption patterns in recent
times have caught policy-makers off guard. On the
1940s. Little did Pollock (or I, in my ink-flicking days)
know, but similar splodges of colour are, in 2015, telling
an eloquent story about the world’s use of energy.
International Energy Agency's data, electricity supplied
in OECD countries in 2014 was 10,195TWh, some 0.4%
down (yes, down) on its level in 2007. During that period,
according to the OECD itself, economic growth in those
countries totalled 6.3%.
The chart produced by my colleague Tom RowlandsRees, head of Bloomberg New Energy Finance's energy
smart technologies team, shows how electricity demand
unfolds by country, according to its stage of economic
development. Not only that, but an extrapolation of that
chart into the future gives a fascinating insight into how it
might evolve country-by-country.
Future electricity demand is not so much the elephant in
the room as the blue whale in the room. Energy policies
around the world reflect forecasts of demand that draw
heavily on conventional assumptions. If those forecasts
turn out to be wrong by even one percentage point per
year, then the difference over 25 years can be so
enormous as to make a that country's energy investment
choices look misconceived and wasteful.
Just how much difference it can make was evident in the
work we did last autumn on Turkey. Official plans
assume that electricity demand will increase at an
average rate of 5% per year between now and 2030,
equal to a total increase of 142%.
Bloomberg New Energy Finance's forecast, based on
what has happened in other economies at a similar
stage of development, by contrast, pointed to an
increase in electricity consumption of 93%. The official
plan implied the need for 97GW of additional power
capacity by 2030, some 16GW of that being coal and
12GW nuclear; our alternative "Renewables
Development Pathway" said that Turkey needs just
Turkey has been an outlier on the upside, with electricity
consumption rising 35% since 2007. However, there are
few others in that category – even Mexico, another
country on the borderline between developing and
developed – saw electricity consumption grow only 9%
in that period.
Of course, within the OECD there were some countries
suffering from the sovereign debt crisis and displaying
very weak electricity demand in the period in question:
Greece down 11% in 2007-14, Italy down 10% and
Spain down 12%. But even the better economic
performers have also been subdued in their demand for
power: the US down 1% despite economic growth of 8%,
Japan down 8% while the economy expanded 1%,
Germany down 5% against a backdrop of GDP rising
5%, France down 3% while the economy has grown 2%,
the UK down 13% against GDP growth of 4%, Canada
up just under 1% despite an economy expanding 11%,
and Australia down 4% despite strong economic growth
of 19%.
Why demand faltered
Overall, OECD electricity demand dropped 6.3% relative
to GDP between 2007 and 2014. One obvious possible
reason could be offshoring of industrial activity to China
and other low-cost centres.
This has certainly been a factor, but it is not the only
one. In the UK, for instance, there was a 38TWh
reduction in consumption of electricity in 2007-14, with
the two main areas responsible being industries other
than iron and steel (down 20TWh or 18%) and
households (down 16TWh or 13%).
In the US, figures from the Energy Information
Administration show electricity retail sales to the
residential sector in 2014 reaching 4,787 trillion Btu in
2014, up 0.8% on 2007 but down 3% since the record
peak of 4,933 trillion Btu in 2010 – despite economic
growth of nearly 9% in 2010-14.
In Germany, electricity consumption by households
reached a peak of 141.7TWh in 2010, and slipped by 2%
to 138.4TWh in 2013, despite economic growth in that
time of 4.1%. Industry's consumption of electricity,
meanwhile, fell nearly 4%. The detailed breakdown for
Germany in 2014 is not yet available, but given that
electricity consumption by the economy as a whole fell
by more than 3% last year, further weakness in
household demand is a very likely to have been a part of
that.
1
In Australia's National Energy Market states , electricity
supplied fell 4% between the 2007-08 financial year and
2013-14. Within this, consumption of grid electricity by
households and the commercial sector fell by 9%. Some
of this is due to fast growth in rooftop PV, but even
adding all of that onto the household and commercial
consumption figure would still give a demand drop of 6%
for those sectors during a six-year period in which
national GDP jumped by 16%.
Power prices are likely to have had an influence on
demand patterns. In many of the countries where
electricity consumption has been weak during this
economic recovery, prices per kWh have been rising.
In the UK, household bills based on an assumption of
constant kWh use increased from GBP 474 in 2010 to
GBP 592 in 2014, a rise of 25%. Faced by that sort of
increase, it would be surprising if consumers did not try
to reduce usage – switching on electric heaters a bit less
often (in the UK for instance, 22% of electricity is used
for space heating), wearing another layer of clothing in
the house in winter, or being more careful about how
much water they put in the kettle.
But there is another important influence at work, and that
is energy efficiency. Take energy-efficient lighting. LEDs
are estimated to reduce electricity use by 50-80% in the
case of city street lights. At a smaller scale, the US
1
All of Australia other than Western Australia and
Northern Territory.
Department of Energy cites the electricity saved by
switching to a 15W halogen compact fluorescent bulb
from a 60W incandescent as 75%.
In the UK, the number of bulbs per household has
increased from 23 at the turn of the Millennium, to 26
now, but standard light bulbs have gone from a dominant
market share to a very small share, and average
household electricity demand for lighting has plunged
from more than 700kWh to less than 500kWh per year.
In the same country, the average fridge-freezer has
gone from consuming 620kWh per year in 1990 to
480kWh in 2000 and 300kWh in 2015.
In IT, the electricity used per trillion computations has
been on steep decline since the 1940s, and in the last
25 years has fallen from 1kWh to just a thousandth of a
kWh. An important reason for this trend is that packing
extra processing power into a smaller area runs to
intractable problems of overheating – unless the
components become more and more energy-efficient.
Future current
This takes us back to Rowlands-Rees' splatter-of-ink
electricity consumption chart. Figure 1 shows the
relationship between GDP per capita in different
countries over 1980-2012, and electricity consumption
per dollar of GDP. Outcomes vary. For instance, Canada
and the US have had higher electricity use per unit of
GDP than Europe, the Middle East has always been well
on the high side and so, to a somewhat lesser extent,
has China. Japan has moved from the centre of the
trend line to well below centre. However, there is a fairly
clear pattern.
The question is whether this pattern is static over time –
in which case we can expect economies such as India
and Indonesia to follow roughly the same path as China,
and South America to follow the same one as North
America – or whether it is itself evolving.
The work that our energy smart technologies team has
done suggests that the trend lines are moving down
(Figure 2). There is still a peak in electricity use per unit
of GDP, but this is shifting from the point when an
economy delivers about $2,000 of GDP per capita in
2002, to more like $8,000 now (expressed in 2009
currency). The peak is also much lower in terms of kWh
than it used to be, and so is the overall level of
consumption as GDP rises towards $100,000 per capita.
If our calculations are borne out by events, then the
march of efficiency technologies and changes in
consumer fashions are going to mean that electricity
consumption continues to undershoot consensus
expectations around the world in the next decade or two.
Figure 1: Electricity consumption/GDP versus GDP per capita, 1980-2012
Electricity/GDP (kWh/$-2009)
EU
MENA
SSA
Other EMEA
1
China
India
Japan
Australia
South Korea
0.1
Other APAC
US
Canada
Brazil
Other AMER
0.01
100
1,000
10,000
100,000
GDP/Capita ($-2009)
Source: Bloomberg New Energy Finance, IMF, World Bank, EIA, Eurostat, US Census Bureau, US Bureau of
Economic Analysis. Note: Size of bubble is representative of country population. Both X and Y scales are
logarithmic. EU=European Union, MENA=Middle East and North Africa, SSA=Sub-Saharan Africa
Figure 2: Electricity consumption/GDP versus GDP per capita, average 2002-22
Electricity/GDP (kWh/$-2009)
1
2002
2022
0.1
0.01
100
1,000
10,000
100,000
GDP/Capita ($-2009)
Source: Bloomberg New Energy Finance. Note: Bubble size represents population.
This will be a big influence on Bloomberg New Energy
Finance's annual forecast on the future of energy to
2040, to be published in June.
Other forecasting organisations do not see the electricity
demand trend in quite the same way. The IEA, in its
World Energy Outlook 2014, published last November,
showed electricity generation worldwide increasing at a
2.1% annual rate between 2012 and 2040, after a 3%
rate of expansion in 1990-2012. This is almost exactly in
line with ExxonMobil, which in its 2015 Outlook for
Energy predicted an 85% jump in global electricity
demand globally by 2040, "as living standards rise,
economies expand and the electrification of society
continues".
They could be right, and BNEF wrong, if the recent
period of reductions in power demand per unit of GDP
proves to be a blip. That blip could plausibly have been
the result of two things: the unusually fast arrival of
efficiency technologies and the unusually slow economic
growth after the 2008 world financial crisis.
It is not a bad argument, but I think there is more going
on than that. There are strong underlying trends in
efficiency affecting products such as those in IT,
refrigeration and air conditioning. There is a series of
step-changes going on in lighting.
There is also the impact of more intelligent devices and,
soon, the connected home. Already, a modern fridge will
make an unpleasant noise if its door is left open. Some
of the latest dishwashers allow users to hit a “four-hour
delay” button that insures that it runs at midnight, not
8pm and that it takes advantage of the cheapest
possible power. The relatively low price of modern
electronic goods makes it an easy decision for
consumers to replace them with newer, more efficient
ones – we no longer live in a world where we expect to
keep our record player for 25 years.
In the near future, space heating systems and air
conditioners will automatically set a different temperature
depending on whether the house or office is occupied or
not, televisions will switch off if no one has been in the
room for five minutes, the last of those brutal, old twobar electric fires will be consigned to the scrap yard in
favour of something much more efficient and responsive
to changing conditions. Improved building design and
materials will also reduce residential energy use.
The wild cards are electric vehicles and heat pumps.
Sudden explosive growth in those markets could throw
forecasts off, and change the demand trend, although it
would have to be spectacular indeed and even then they
are starting from such a low base that it might not make
much difference this decade (see box below).
One final thought: the weaker-than-expected trends in
electricity demand will be in the back of the minds of the
parties in the run-up to the Paris climate change
conference in December. They will boost hope that it
may be possible to avert the worst scenarios of global
warming. But softer global electricity demand growth will
not be enough, on its own, to prevent temperatures
rising by more than two degrees Centigrade.
Even if global emissions were to stop rising right now,
the amount CO2 in the atmosphere is on track to rise
from around 400 parts per million to 450 within 20 or so
years. That is the CO2 share that the IEA says would
give the world a greater-than-50% chance of limiting
temperature increases to less than two degrees
Centigrade. Despite the "blue whale in the room" of
slower-than-expected electricity demand growth,
stabilising the CO2 in the atmosphere will require action
on many other fronts.
How much difference could EVs make?
On one estimate, by the Royal Academy of
Engineering in 2010, an EV equivalent to a
small petrol or diesel four-seat car uses
around 0.2 kWh per kilometre in normal city
traffic. If the average vehicle travels
15,000km in a year, and battery EVs
amount to three million worldwide by 2020
(just over 10 times new EV sales in 2014),
then that would be 9TWh of consumption in
that year. That would be equivalent to just
0.04% of the IEA's figure for world electricity
generation in 2012, of 22,721TWh.
The calculation above assumes that the EV
market grows at 20% a year between 2015
and 2020, and that all the EVs still on the
road in 2020 are those sold from 2014
onwards. It is based on 2020 EV sales
reaching 1.4m, compared to 288,500 in
2014. Even if global EV sales in 2020 were
double that, they would still be adding less
than 0.1% to electricity demand.
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