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Consumers are Using Less Power - Here's What That Means for the Market

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2018 was a banner year for the U.S. energy industry—one that influenced the way that business owners large and small use, pay for, and think about their power supply. What stood out in the U.S. energy landscape last year, and what’s in store for 2019?

Direct Energy Business President John Schultz offers his insights and predictions on the U.S. energy scene. In last week's update, he spoke about natural gas production and wholesale pricing. Tune in today to learn what's happening with power consumption: 



The Incredible Shrinking Grid

For more than a century through the rise of the Industrial Revolution, power consumption in the U.S. - and most developed nations - climbed. But over the past decade, that generations-long trend has ended. Power consumption has actually decreased in four of the past eight years, and overall usage in 2017 was equal to that of 2010. In a sense, the U.S. energy grid is shrinking as consumers find efficiencies and even turn to non-grid-based energy to power their homes and businesses. 

“This [plateau in U.S. energy consumption] is a result of a decade of investment in behind-the-meter solar, which is shifting load off the grid, and also energy efficiency initiatives,” Schultz notes. “We are spending something close to $40 billion annually on energy efficiency, so that investment is starting to make a material impact.”

The U.S. Energy Information Administration (EIA) projects that U.S. power consumption will remain relatively flat over the next two decades, with natural gas and renewable sources making up a larger percentage of the energy mix.

Cheap Energy, Everywhere

In virtually every U.S. market, at virtually any time, power is inexpensive. Even in the five largest cities in the country—New York, Los Angeles, Chicago, Dallas and Philadelphia—the cost of wholesale electricity has averaged about three cents per kilowatt hour over the past year. 

“The impact of lower demand, cheap gas prices and higher amounts of zero marginal cost renewable generation are all contributing factors to lower energy prices,” Schultz says.

Related Content: Commercial Energy Prices are Low, But Your Bill isn't Getting Cheaper: Here's Why  Read the article >>

A Free Market?

With flat or decreased demand for power and low energy prices, generating sources are increasingly seeking subsidies. Wind, solar, nuclear, and coal (an area of focus for the Trump administration), among other industries, are seeking federal and state-level incentives to stabilize their operations. 

“The deregulation of wholesale power markets was supposed to lead to unfettered competition to provide everyone with cheap energy,” Schultz says. “We have half of that today. Energy is cheap. But that is leading all types of generators to seek subsidies because they ostensibly can’t earn a reasonable return. And the states are supporting those subsidies because they want local jobs, a tax base and in some instances, the environmental benefits of zero emission generation. Estimates are that one-third of all generation in PJM, our largest organized wholesale power market, will be subsidized by 2025. So clearly the power markets aren’t working as well as they could be.”

Explore other installments from John Schultz in the series below, or watch the complete interview now.

Posted: January 15, 2019