WASHINGTON — For generators buffeted by low energy prices and unreliable capacity revenues, PJM’s General Session Feb. 12 provided something of a tonic.
Larry Makovich, vice president and senior advisor for global power at consulting firm IHS CERA, provided a bullish forecast for load growth for the more than 75 stakeholders and PJM officials who attended the session at the Hyatt Regency Washington near the Capitol. Another 55 — some perhaps dissuaded from attending in person by snowstorm forecasts — watched via webcast.
The low- or no-growth forecast of many analysts “is probably far too bearish,” Makovich said. “The fundamentals suggest we ought to be running 1.5 to 1.7% per year” load growth.
EIA, PJM More Bearish
That is substantially above the Energy Information Administration’s projection that U.S. power demand will grow by only 0.9% annually through 2040. EIA’s 2013 Annual Energy Outlook predicted increasing demand would be largely “offset by efficiency gains from new appliance standards and investments in energy-efficient equipment.”
PJM is projecting summer peak load growth of 1.0% annually over the next 10 years, and 0.9% over the next 15 years with winter peaks growing at 0.9% and 0.8% respectively. (The projection was revised this month to reflect a 120 MW reduction in the 2014/15 forecast peak for the BGE zone.)
While the “conventional wisdom” is that electric efficiency gains will result in little or no load growth, Makovich noted that after steadily improving between 1950 and 1970, U.S. electric efficiency stalled at about $3 of real GDP per kWh for the next 20 years. Since 1990, efficiency has declined, to about $3.50 of GDP per kWh.
Meanwhile, ratepayer spending on electric efficiency, which grew steadily from less than $1.5 billion in 2000 to about $6 billion in 2011, has been flat since then.
More spending in the future will be to keep the gains of the past, Makovich said. “The cost of increasing efficiency and the cost of supply are getting kind of close to each other.”
Load Growth by Sector
Similarly, electric use per customer is virtually unchanged over the past decade. Residential load growth has averaged 1.6% to 2.2% per year over the last decade while commercial load had grown by 2.4% to 3.4% annually. “What’s been going down is industrial” use, he said.
And that could change as a result of what Makovich called the U.S.’ “dramatically improved competitive position.” Since 2001, the U.S.’s industrial electricity prices have declined substantially relative to trading partners such as Mexico, China and Canada. Germany, which was at parity with the U.S. in 2001 now has rates that are more than twice as high.
Meanwhile, demand response, which has roiled the PJM capacity market, is nearing “saturation” in the U.S., said Julien Dumoulin-Smith, a UBS Investment Research analyst who also spoke at the session.
Distributed Generation
Makovich also challenged predictions that distributed generation will increasingly displace large generators owned by utilities and independent power producers.
While the growth of rooftop solar has generated much buzz, he noted, utility-scale solar is 50% cheaper and thus likely to dwarf residential applications. One-third of worldwide rooftop solar is in Germany, which Makovich noted has “the sunlight intensity of Anchorage, Alaska.”
Wind power is not well suited to distributed generation because of siting limitations and economies of scale. Manufacturers have obtained substantially greater efficiency as they have increased the average rotor diameter to 330 feet from less than 50 in 1980.
The costs of fuel cells and other storage technologies haven’t dropped enough to make a major difference, he said.
Makovich said fuel diversity is undervalued and being lost because wholesale power prices are too low. The low natural gas prices the U.S. has enjoyed as a result of shale gas shouldn’t obscure the fuel’s historic price volatility.
“Natural gas will remain cyclical and prone to periodic volatility as transportation becomes challenging,” Makovich said.
