June 1, 2009

Recession Reduces Demand for Electricity

Mark Axford

When roving Contributing Editor Mark Axford attended several recent energy conferences, he found the same questions asked at each one about new U.S. generation sources and consumption patterns. Unfortunately, the experts had few good answers to those questions.

The first quarter 2009 economic data confirm that the recession has slowed the demand for just about everything in the U.S., including energy. As in prior recessions, consumption of gasoline has fallen as households cut back on their discretionary road trips. Demand for jet fuel is down as businesses put limits on their travel budgets. Natural gas consumption has fallen as energy-intensive factories operate at reduced capacities.

If there is an unseen benefit hidden in the data, it’s that the prices for gasoline, jet fuel, and natural gas have also dropped far from their peak prices in 2008. In fact, natural gas futures dropped to a six-year low in late April; companies that were feeling good last year about their fixed-price gas contracts are out in the cold today.

Breaking Records

A recession usually dampens the rate of electricity demand growth for a few quarters, but this is no ordinary recession (Figure 1). Projections of the total consumption of electricity in the U.S. during 2009 have been lowered... again. The Energy Information Administration’s (EIA’s) most recent estimates show that, for the first time in the history of the U.S., the consumption of electricity will likely fall for two consecutive years (2008 and 2009). Some utility executives privately admit that they are not optimistic that 2010 will rebound back into positive growth territory.

1. Updated U.S. total electricity consumption, 1998–2010. The most recent data released by the EIA shows electricity consumption in the U.S. dropping 1.6% in 2009 compared with the prior year. Source: Energy Information Administration.

To recap electricity consumption in the U.S. through March 1, 2009, it has fallen in all three sectors:

• Residential consumption was down 2.5%.

• Commercial consumption was down 4.7%.

• Industrial consumption was down 13.8%.

Yet,

• Electricity generated from coal was down 13%.

• Electricity generated from wind was up approximately 35%.