Peak Energy – Are we there in the US?

Peak Energy – Are we there in the US?

Peak energy can be related to many things from Peak Demand, Peak Oil, etc…   Let me clarify my discussion.   Peak energy in my context is the electric energy being consumed by the end user each hour and averaged.   Therefore, the unit of peak energy is Megawatt Average (MWa).   This is much different than the peak demand Megawatt (MW) which occurs in one hour.

I am writing about this topic as I have just analyzed 118 Load Zones across the N. American continent.   Statistical analysis was done on those areas incorporating 26 variables, which included 9 weather zones  (CDD & HDD) and 8 economic regions starting with data back to 2009.  This was an arduous and complex task as each individual zone needed its own menu of variables to optimize the analysis.  AEC is about to launch a new online product – Power Market Analysis (PMA).  PMA will be an online product with annual subscription access to power prices projections across the country and fuel consumption forecast of coal and gas in the power sector for the next two years – More information on PMA to come.  Load represents a fundamental input in analyzing the power markets, so the task had to be done.

The results of the analysis are very eye opening.  The R squared (indication of how well data points fits to the variables analyzed with – ranges from 0 to 1, poor to perfect fit) across all 118 load zones averaged 0.92.  There were several regions which have now begun to decouple from GDP.  The economic well-being of several regions is no longer driving the growth of power.   At this point, I can hear grumblings and concerns at investor held utilities since the load growth is the main mechanism on shareholder returns.  Don’t stop reading, it’s not all gloom or doom for all utilities.   There are two main reasons for this decoupling of GDP.   First is the increase spending in Demand Side Management programs across the country to a tune of $9 Billion.  Second, we may have reached a peak point in energy consumption per capita.   As you look around, how many more devices can you obtain?  Each new device is incorporating better and improved efficiency.  At some point, we will hit a limit to the energy consumption each of us can do.   We are clearly seeing this in this analysis in certain large metropolitan areas when you strip out the weather component.   However. I am only seeing this in certain regions.

The EIA put out a briefing on March 22, 2013 alluding to this.  The graph below does not seem to be weather normalized.  This can lead to a skew vision of what has gone on recently.

Weather has been a large factor over the recent years.   If you look at the GDP from 2010 to 2013 the growth is close to 4%/yr.   If you look at electricity consumption without normalized weather the picture will show an annual decline of 1%/yr.   However, if you strip out the weather component, the load growth is closer to 2.3%/yr.  2010 was an extremely warm year with cooling degree days across the country 21% greater than a normal year.

Weather variations will lead to consumption change as we have become quite temperate in our ability to adapt to various climates.  The weather piece will need to be stripped out of the discussion when it concerns understanding the relationship between power consumption and the economy.  Peak energy discussions cannot include a conclusion on the basis of extreme weather events.  Based on our analysis we still project a rather robust growth in power consumption of 1.9%/yr for N. America based on normal weather and GDP growth around 3%.   Areas that are seeing significant growth are related to the Oil & Gas areas such as Texas, Alberta, Louisiana, and even pockets in the Midwest with shale development.

PMA will offer a daily view of the next two years with three different scenarios – base, high power price, and low power price.   The changes between the cases will be weather, GDP, and gas prices.  In addition subscribers to PMA will be presented monthly with scenario and sensitivities which delve into the greater market dynamics seen in the power space.   PMA will be valuable to those in the Oil & Gas, Coal, and Power industry.   For the Oil, Gas, and Coal companies the focus will be on better understanding on fuel consumption in the power sector.   The power industry the fuel and power prices will be available.   In terms of functions within an organization, expect value to be given to Trading, Fundamentals, Budgeting, Fuel Contracts, and Policy groups.

There is more to come on PMA as we expect a product launch sometime in February.

Your Tireless Analyzing Energy Consultant,

David K. Bellman


Twitter: AECDKB

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