|
Items in cart [0] |
Questions? Call 888-624-8373 |
| ||||||||||||
| Copyright © 2010. National Academy of Sciences. All rights reserved. Terms of Use and Privacy Statement |
Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page R1
Electricity in Economic Growth
A Report Prepared by the
Committee on Electricity in Economic Growth
Energy Engineering Board
Commission on Engineering and Technical Systems
National Research Council
NATIONAL ACADEMY PRESS
Washington, D.C. 1986
OCR for page R2
NATIONAL ACADEMY PRESS 2101 CONSTITUTION AVE., NW WASHINGTON, D.C. 20418
NOTICE: The project that is the subject of this report was approved by the Governing
Board of the National Research Council, whose members are drawn from the councils of
the National Academy of Sciences, the National Academy of Engineering, and the Institute
of Medicine. The members of the committee responsible for the report were chosen for
their special competences and with regard for appropriate balance.
This report has been reviewed by a group other than the authors according to procedures
approved by a Report Review Committee consisting of members of the National Academy
of Sciences, the National Academy of Engineering, and the Institute of Medicine.
The National Research Council was established by the National Academy of Sciences in
1916 to associate the broad community of science and technology with the Academy's
purposes of furthering knowledge and of advising the federal government. The Council
operates in accordance with general policies determined by the Academy under the authority
of its congressional charter of 1863, which establishes the Academy as a private, nonprofit,
self-governing membership corporation. The Council has become the principal operating
agency of both the National Academy of Sciences and the National Academy of Engineering
in the conduct of their services to the government, the public, and the scientific and
engineering communities. It is administered jointly by both Academies and the Institute of
Medicine. The National Academy of Engineering and the Institute of Medicine were
established in 1964 and 1970, respectively, under the charter of the National Academy of
Sciences.
This is a report of work supported by Subcontract 9-X54-K6585-1 between Los Alamos
National Laboratory, in its capacity as prime contractor to the U.S. Department of Energy,
and the National Academy of Sciences.
LIBRARY OF CONGRESS CATALOG CARD NUMBER 86-70372
INTERNATIONAL STANDARD BOOK NUMBER 0-309-03677-1
First Printing, March 1986
Second Printing, December 1986
Third Printing, May 198 8
Printed in the United States of America
OCR for page R3
Committee on Electricity in Economic Growth
MARTIN BAUGHMAN (Chairman), Department of Electrical and Computer Engineering, The
University of Texas at Austin
BARBARA R. BARKOVICH, University of California, Berkeley, California
ATIF S. DEBS, Department of Electrical Engineering, Georgia Institute of Technology, At-
lanta, Georgia
DALE W. JORGENSON, Department of Economics, Harvard University, Cambridge, Massa-
chusetts
PAUL L. JOSKOW, Department of Economics, Massachusetts Institute of Technology, Cam-
bridge, Massachusetts
EUGENE W. MEYER, Kidder, Peabody & Company, Incorporated, New York, New York
LAWRENCE T. PAPAY, Southern California Edison Company, Rosemead, California
DAVID B. ROE, Environmental Defense Fund, Berkeley, California
SAM H. SCHURR, Electric Power Research Institute, Palo Alto, California
ROBERT L. SEALE, Department of Nuclear and Energy Engineering, University of Arizona,
Tucson, Arizona
MASON WILLRICH, Pacific Gas and Electric Company, San Francisco, California
Liaison with Energy Engineering Board:
GEORGE S. TOLLEY, Department of Economics, University of Chicago, Chicago, Illinois
Staff:
DENNIS F. MILLER, Executive Director, Energy Engineering Board
JOHN M. RICHARDSON, Principal Staff Officer, Committee on Electricity in Economic
Growth
HELEN D. JOHNSON, Staff Associate, Energy Engineering Board
CHERYL A. WOODWARD, StaffAssistant, Committee on Electricity in Economic Growth
. . .
OCR for page R4
Energy Engineering Board
HERBERT H. WOODSON (Chairman), School of Engineering, The University of Texas at
Austin
ERNEST A. BAILLIF, R&E Whirlpool Corporation, St. Joseph, Michigan
ALLEN J. BARD, Department of Chemistry, The University of Texas at Austin
ROBERT J. BUDNITZ, Future Resources Associates, Berkeley, California
THELMA ESTRIN, School of Engineering and Applied Science, University of California at
Los Angeles
WILLIAM R. GOULD, Southern California Edison Company, Rosemead, California
S. WILLIAM GOUSE, Mitre Corporation, McLean, Virginia
NICHOLAS J. GRANT, Department of Materials Science and Engineering, Massachusetts
Institute of Technology, Cambridge, Massachusetts
BRUCE H. HANNON, Department of Geography, University of Illinois at Urbana-Champaign
GARY H. HEICHEL, U.S. Department of Agriculture and Department of Agronomy and
Plant Genetics, University of Minnesota, St. Paul, Minnesota
EDWARD A. MASON, Amoco Corporation, Naperville, Illinois
ALAN D. PASTERNAK, Sacramento, California
ADEL F. SAROFIM, Department of Chemical Engineering, Massachusetts Institute of Tech-
nology, Cambridge, Massachusetts
WESTON M. STACEY, JR., School of Nuclear Engineering and Health Physics, Georgia
Institute of Technology, Atlanta, Georgia
RICHARD STEIN, The Stein Partnership, New York, New York
THOMAS E. STELSON, Georgia Institute of Technology, Atlanta, Georgia
LEON STOCK, Department of Chemistry, University of Chicago, Chicago, Illinois
GRANT P. THOMPSON, The Conservation Foundation, Washington, D.C.
GEORGE S. TOLLEY, Department of Economics, University of Chicago, Chicago, Illinois
RICHARD WILSON, Department of Physics, Harvard University, Cambridge, Massachusetts
1V
OCR for page R5
Technical Advisory Panel:
HAROLD M. AGNEW, GA Technologies, Incorporated, Solana Beach, California
FLOYD L. CULLER, JR., Electric Power Research Institute, Palo Alto, California
*DAVID J. ROSE, Department of Nuclear Engineering, Massachusetts Institute of Technol-
ogy, Cambridge, Massachusetts
CHAUNCEY STARR, Electric Power Research Institute, Palo Alto, California
ALBERT R. C. WESTWOOP, Martin Marietta Corporation, Baltimore, Maryland
Staff:
DENNIS F. MILLER, Executive Director
HELEN D. JOHNSON, Staff Associate
*Deceased
v
OCR for page R6
OCR for page R7
Preface
This study of electricity and economic growth originated from the need of the U.S.
Department of Energy to understand more fully the complex relationships between
economic activity and electricity use. Such understanding is basic to policy and
program decisions about legislation, research, and incentives for the private sector.
The objectives of the study were twofold. The first was to show how trends in the
growth of electricity demand may be affected by changes in the economy. The second
was to examine the connection between the use of electrotechnologies and productiv-
ity. The influences of prices and regulatory measures on electricity demand are
acknowledged in the report, but the substantial analyses and projections needed to
address these effects had to be left for other studies. Similarly, we did not try to build
new models of electricity demand, make demand forecasts, estimate the best mixes of
supply technologies, or address specific policy recommendations that might influence
electricity supply and demand.
We reviewed literature our members knew to be relevant and heard briefings by
experts who had conducted! research on electricity in the economy. Other experts
briefed the committee on specific uses and technological trends in the manufacturing,
commercial, and industrial sectors.
The report is intended for officials in the Department of Energy concerned with
policy analysis and planning, federal and state regulatory officials, and managers of
electric utilities. Members of the broader public concerned with energy, electricity,
and conservation will also find information of interest here.
It is a pleasure to recall the interest and support of Ronalc} I. Sutherland of Los
Alamos National Laboratory and of David H. Meyer, Howard H. Rohm, and Edward
F. Mastal of the tr.s. Department of Energy, all of whom were concerned with the
sponsorship of the study. All the members of the committee gave generously of their
time and experience. Nor would the task have been completed without the constant
support of Dennis F. Miller, Executive Director of the Energy Engineering Board,
who was responsible for the concept of the study. Cheryl A. Woodward handled the
manifold administrative and logistic matters with a competence and graciousness
admired by all. John M. Richardson, of the board's staff, deserves special commenda-
tion for his efforts in support of the committee's work, including, but not limited to,
. .
V11
OCR for page R8
his assistance in synthesizing and integrating the written material of the committee,
the direction and continuity he provided throughout the project, and his warm and
cheerful demeanor in the pursuit of the committee's business. ~ acknowledge all these
contributions with sincere thanks.
MARTIN BAUGHMAN, Chairman
Committee on Electricity in
Economic Growth
vail
OCR for page R9
Contents
SUMMARY
1
INTRODUCTION, CONCLUSIONS, AND RECOMMENDATIONS
Introduction /
Conclusions / 7
Recommendations
/ 13
HISTORICAL PERSPECTIVE
Historical Patterns: 1902 to 1983 / 16
Post-WorId War II Trends: 1947 to 1983 / 22
Continuity and Change: Pre- and Post-Embargo Trends / 49
References / 55
.. xv
· · -
· . 15
3 ELECTRICITY AND PRODUCTIVITY GROWTH 57
The Concept of Productivity / 58
The Background / 60
The Recent Decline in Economic Growth / 63
The Econometric Mode} / 68
Interpretation of the Recent Decline in Growth / 80
References / 84
4
EXAMPLES OF ELECTRIFICATION AND PRODUCTIVITY GAINS 88
Electricity and Technological Progress / 89
Kinds of Technical Change That Alter Electricity Use / 90
Examples of Electricity-Dependent Technical Change / 91
Other Industrial Technologies / 106
The Significance of Electrification / 106
References / 109
1X
OCR for page R10
FUTURE ECONOMIC INFLUENCES ON ELECTRICITY USE
The Range of Recent Forecasts / 112
The Changing Composition of National Output / 114
Prices of Electricity and Other Fuels / 124
Practices and Potentials for Efficiency Improvements: Conservation and
Load Management / 126
The Outlook / 130
References / 132
APPENDIX A
STATEMENT OF WORK ..........................................
APPENDIX B
MEASURES OF ECONOMIC GROWTH AND OF ELECTRICITY
DEMAND . ~
APPENDIX C
ECONOMETRIC MODEL OF PRODUCTION AND TECHNICAL CHANGE
APPENDIX D
EXCERPTS FROM AN ANALYSIS OF THE EXPECTED IMPACT OF
VARIOUS ELECTROTECHNOLOGIES ON ELECTRICITY DEMAND
GLOSSARY
x
.. 110
· -
... 133
...... 135
143
.. 155
164
OCR for page R11
fist of Tables
2-~.
2-2.
2-3.
4-l .
4-3.
4-4.
Average Annual Growth Rates in Total Energy, Electricity, and Non-
electric Energy Consumption for Selected Periods, 1902 through 1983
U.S. Electricity Sales by Sector (Percent of Total)
18
26
Gross Product Originating (GPO) in the U.S. Economy for Selected 36
Years, 1950 to 1983 (Percent of Total)
Employment in the U.S. Economy for Selected Years, 1950 to 1983 36
(Percent of Total)
Gross National Product (GNP) by Major Type of Product for Se- 37
lected Years, 1950 to 1983 (Percent of Total)
Average Annual Growth Rates of Electricity and Gross National
Product (GNP) and Their Ratios over Selected Postwar Periods
50
Relative Annual Growth of Various Quantities in the U.S. Economy 65
for Selected Periods, 1948 through 1979
Classification of Industries by Their Patterns of Biases of Productivity
Growth
Comparative Costs for Producing Molten Steel (:1982 Dollars per Ton)
Primary Energy Requirements for Molten Steel
The Comparative Cutting Speeds of Lasers and Saws
Comparative Labor Costs for Cutting Titanium Aircraft Components
(Including Setup and Postprocessing Time), with Band Sawing and
Laser Cutting Techniques
X1
75
94
94
97
97
OCR for page R12
4-5. Titanium Cutting Cost Comparisons (in 1982 Dollars)
98
4-6. Comparison of Electron Beam (EB) and Metal Inert Gas (MIG) Weld- 101
sing
4-7. Estimated Power Requirements for Electronic Office Equipment 105
4-~. Industrial Electrotechnologies and Their Applications
107
Average Annual Percentage Growth Rates of Selected Indicators and 113
the Ratio of Growth Rates of Electricity Consumption and Gross
National Product (GNP)
5-2. Electricity Consumption by Industry Sector and End Use, 198Q (Bil- 117
lions of Kilowatt Hours)
5-3.
B-1.
B-2.
B-3.
Efficiencies of Typical and Best Household Appliances (1982 Models) 123
and Potential Increases in Efficiency from Typical to Best
Capability, Peak Load, and Kilowatt Hour Requirements, for the 138
Total Electric Utility Industry Excluding Alaska and Hawaii, 1963 to
1984
Compound Growth Rate in Peak Loads and Energy Requirements, by 139
Region, 1979 to 1983 (Percent per Year)
Projections of Growth in Annual Load and Energy Requirements, by
Region, 1984 to 1993 (Percent per Year)
142
D-1. Effects of Using Some Electrotechnologies in Industrial Applications 157
D-2. Effects of Using Some Electrotechnologies in Commercial Applica- 159
lions
D-3. Effects of Using Some Electrotechnologies in Residential Applica- 161
lions
D-4. Effects of Using Some Electrotechnologies in Transportation Applica- 163
lions
. .
X11
OCR for page R13
List of Figures
1-1 .
2-1.
2-3.
Relationships affecting electricity and economic growth.
5
Historical trends in U.S. energy consumption, 1902 through 1983. 17
Electricity consumption vs GNP in the United States, with lines of=
regression by periods, 1902 through 1983.
Electricity use and GNP the transitions.
20
21
Electricity consumption vs GNP in the United States, 1947 through 23
1984.
(a) Growth rates of U.S. electricity use and GNP, (b) ratio of the
growth rates.
25
Electricity use-economic measure relationships, by economic sector, 28
1947 through 1983.
Growth rates of electricity sales and sectoral output indicators, 1947- 29
1983: (a) residential, (b) commercial, (c) industrial.
2-8. Residential electricity use patterns, 1950, 1960, and 1970. 30
Residential electricity use patterns, 1970 and 1980.
2-11.
2-12.
32
Electricity intensities in the U.S. economy, 1947 through 1984.
Electricity intensity of manufacturing, 1973 and 1981 compared.
39
41
Six-SIC share of constant dollar manufacturing GPO, 1947 through 42
1983.
. . .
X111
OCR for page R14
Electricity intensities in manufacturing (Index: 1971 = 100~.
Trends in real energy prices to U.S. personal consumers, 1935
through 1984.
Trends in real energy prices, 1967 through 1984.
Electricity price ratios in the United States, 1960 through 1984.
2-18.
4-1.
4-2.
4-3.
B-1.
43
44
1
Electricity vs GNP: (a) the 1947-1983 record, (b) some possible
future relationships.
Gross energy use by economic sector, 1960 through 1984.
46
47
52
54
Comparison of steelmaking processes: (a) integrated blast furnace, (b) 93
electric furnace.
(a) Comparison of heat-affected zones for conventional and electron
beam welding, (b) distortion of parts from shrinkage. The lower
residual stresses in the parallel weld minimize regions susceptible to
cracking and failure.
Office building resource energy intensity, 40-year trends.
U.S. Regions of the North American Electric Reliability Council
(ECAR, East Central Area Reliability Coordination Agreement;
ERCOT, Electric Reliability Council of Texas; MAAC, Mid-AtIantic
Area Council; MAIN, Mid-American Interpool Network; MAPP,
Mid-Continent Area Power Pool; NPCC, Northeast Power Coordinat
ing Council; SERC, Southeastern Electric Reliability Council; SPP,
Southwest Power Pool; WSCC, Western Systems Coordinating Coun
cil).
xiv
99
102
140
OCR for page R15
Summary
From 1973 through 1982 a number of general trends that previously characterized
electricity use showed distinct changes. Such changes have given rise to significant
uncertainty about the future relationship between electricity use and economic growth.
It is therefore useful to examine the forces that now underlie electricity use and to ask
whether basic changes have occurred or are occurring, and, if so, to determine what
we can about their nature and extent.
We address two fundamental relationships between electricity use and the economy
in this report. One is how electricity use depends on various economic and technical
factors, that is, the demand for electricity, to use the term of economics. The second
is to what extent applications of electricity, as an especially high grade of energy, may
facilitate technological advances and stimulate the economy through productivity
gains. How electricity should be supplied we leave for others to analyze.
Ordinary experience indicates that electricity use should depend at least in part on
the general level of economic activity, the prices of electricity ant} its alternatives,
public policy, regulation, and the development and diffusion of novel and more
efficient applications.
It is important to understand the relationships between electricity use and the
economy, regarding both consumption and productivity, to formulate public policy,
regulate the industry, and manage individual firms. Public policies may need to
encourage chance in the system's operation through legislation. re~ulatorv changer
~ ~ ~ ~ _ t~ ~ ~ ~ ~ _ = ~ ~ ^ _ _ ^ _ ~ A ~ ~ _ = ~ ~ ~ ~ _ ^ ~ ~ ~ ~ = _ ~ ~
Investment Incentives, or research. Better knowledge of the relationships between
electricity use and the economy, both in the aggregate and for particular end uses,
should permit better regulatory decisions to facilitate economic efficiency. The man-
agement decisions of individual utilities and their suppliers will of course also benefit
from a better framework for analysis of their business choices.
The committee's task was to assess the role of electricity in domestic economic
growth. Our charge was to review the historical importance of electricity in U.S.
economic growth, analyzing structural economic changes that have or may take place
ant! that could influence the future growth of electricity use and reviewing recent
changes in electricity use with attention to their significance for the future. We die] not
construct new models or make particular forecasts.
xv
OCR for page R16
Recommendations
We discuss the conclusions supporting our recommendations more fully below and in
Chapter I. In brief, two important conclusions underlie the recommendations that
follow. First, there has been a strong correlation between the use of electricity and the
size of the gross national product. Second, the recent research described in Chapter 3
was judged sufficiently significant to say with some confidence that there is a strong
connection between electncity and productivity growth.
1. The relationship between electricity and productivity-is so important that it should
be considered in developing federal and state energy and economic policies.
Productivity growth is critical in attacking many problems facing the United States,
including the federal deficit and the balance of trade. Consequently, all possibilities of
stimulating productivity growth, including attention to electricity supply and use,
should be evaluated and pursued in accord with their promise.
* * * * *
2. To foster increased productivity, policy should stimulate increased efficiency of
electricity use, promote the implementation of electrotechnologies when they are
economically justified, and seek to lower the real costs of electricity supply by
removing any regulatory impediments and developing promising technologies to pro-
vide electricity.
The findings of this report establish a connection between electricity and productivity
growth when two factors coexist: technical change and favorable electricity supply
conditions. In addition, cost-effective increases in the efficiency of electricity use will
themselves not only increase productive output for a given input of electncity but also
free income for other purposes. These points suggest that federal and state policies
that promote lowering the real costs of electricity supply and use, through research
and development and through more efficient pricing by regulatory authorities, will
benefit productivity growth.
* * ~ * *
3. Further research should be undertaken to identify and quantify the forces affecting
the relationships between electricity and economic growth in view of their critical
importance, complexity, and regional diversity.
The strong and persistent relationship between electricity use and gross national
product requires that close attention be paid to the adequacy of electricity supply to
sustain a high future rate of economic growth. The adequacy of electricity supply can
be maintained not only through new generation facilities but also through efficiency
improvements that use existing generating capacity better. Although favorable electric-
ity supply conditions of themselves will not assure economic growth, a lack of
xv
OCR for page R17
adequate supply would almost certainly constitute a serious impediment to such
growth. We need to learn more about the correlations and causal relationships be-
tween economic growth and the use of electricity. Well-directed policy, regulatory,
and managerial decisions rest on such knowledge.
Conclusions
For the reader's convenience our principal conclusions, along with brief supporting
rationale, are given here and are covered more fully in Chapter I.
Electricity Consumption
Electricity use and gross national product have bet a, and probably will continue to
be, strongly correlated.
In this century there have been four well-defined periods in the relationship between
electricity use and gross national product, periods in which the relationship has been
linear and stable. The fourth period began after World War II and may still be
. · .
continuing, although the character of the relationship following the 1973 Arab oil
embargo is in dispute. It is not yet possible to conclude whether changes in the data
after 1973 reflect only variations from the most recent trend line, as have occurred
before, or whether they indicate a fundamental shift in the relationship. Regarding the
future course of the relationship, no reasons yet seem likely either to compel a change
or to inspire great confidence that past trencis will continue. Hence the strongest
statement that can be made is that the continuation of the long-term correlation is
probable.
Historic trends in the relationship between electricity use and gross national product
include the effects of a host of factors not explicitly identified in the simple linear
equation relating the two variables. Factors believed to be important include the prices
of electricity and of competing energy forms, the composition of national output, shifts
in regional economic activity, technical change, conservation, ant! government poli-
cies. Other representations of the relationship may be used to analyze such factors
more fully. However, it is only when there are major changes in these underlying
variables that we should expect changes in the fundamental relationship between
electricity use and gross national product. Even then some effects may cancel each
other (such as rises in both electricity and other energy prices). Two forces believed
important in determining the basic trenc! of future relationships between electricity use
and economic activity are the introduction of electrotechnologies and conservation.
However, their future effects, like those of other underlying variables, are not readily
quantified.
Electricity and nonelectrical energy prices are generally acknowledged as factors
determining electricity consumption. However, by far the most important contribution
to explaining consumption in the past has been gross national product. The observed
departure on occasion of electricity consumption from the main trend line may be
explained in part by taking price changes into account. Furthermore, there is an
. .
XV11
OCR for page R18
implicit dependence of electricity consumption on energy prices through the depen-
dence of gross national product in part on productivity growth, which in turn is shown
to depend partly on energy prices.
Productivity Growth
Productivity growth may be ascribed partly to technical change; in many industries
technical change also tends to increase the relative share of electricity in the value of
output, and in these industries productivity growth is found to be the greater the lower
the real price of electricity, and vice versa.
Economic growth, conveniently expressed as percentage change in gross national
product, results from growth in capital input, labor input, and productivity. Productiv-
ity represents increases in output that are not accounted for by contributions of the
first two factors. Productivity growth for the economy as a whole derives mainly from
sectoral productivity growth.
The decline in the rate of U.S. economic growth since the early 1970s is associated
with a decline in sectoral productivity growth rates, rather than other factors, and is
strongly associated with increased energy prices.
These associations were established by an econometric model, which shows that the
relationships among technical change, price, and productivity growth are such that, for
many industries, technical change in combination with low electricity prices drives up
overall productivity growth, and conversely. Regarding nonelectrical energy, such
effects are found in even more industries.
The decline in the real cost of electricity, in part due to dramatic increases in the
thermal efficiency of electricity generation, increased electricity use and stimulated
productivity growth until the early 1970s. The rise of electricity costs, combined with
a rise in the prices of primary fuels after the international of} price increases of 1973
and 1979, has been a factor in reduced productivity growth in many industries, which
may partly be explained by the substitution of other, less efficient inputs for these
energy inputs.
Technical Change
Technical change has made possible many new opportunities for exploiting the special
qualities of electricity. In the past these changes were often associated with increased
intensity of electricity use, but in the future their net effect on that intensity will
depend on the balance between their increased penetration and the increased eff-
ciency of these applications.
Electricity has unique properties that make it an attractive form of energy: its highly
ordered nature, its flexibility, and its cleanliness. There is still a large potential for
further electrical applications that take advantage of these special properties.
Some electrotechnologies increase the intensity of electricity use (electricity use per
unit of economic output, or electricity intensity) through wider application of electrical
processes; others decrease it through productivity gains. In the economy as a whole
. . .
xv
OCR for page R19
the increase in electricity intensity with increased gross national product has proved to
be relatively small because of these offsetting effects.
Historically, technical change exploiting the special qualities of electricity has con-
tributed to increased productivity and thereby to increases in gross national product.
We can expect this trend to continue.
The Effects of Price Changes
Electriciry prices and alternative fuel prices affect electricity consumption in two
ways:first, they directly affect the use of electricity and nonelectricluels as input
factors of production; second, they indirectly affect productivity growth and thereby
economic growth.
If electricity prices alone rise, electricity use will decrease according to its elasticity of
demand with respect to its own price. A rise in the price of competing fuels, without a
rise in the price of electricity, will increase electricity consumption through elasticity
of demand with respect to the prices of other fuels. If electricity prices rise because of
a rise in primary fuel prices, a reduction in electricity use through own-price elasticity
will occur and will be offset to some degree by an increase in the use of electricity
instead of primary fuels, that is, through cross-price elasticity.
Any increase in the real price of electricity will also indirectly further decrease its
use because it will lower productivity growth rates in many industries, in turn leading
to a lowered rate of general economic growth.
Conservation
There is further potential for increasing the efficiency of electricity use, particularly in
the residential and commercial sectors.
Particularly in the residential and commercial sectors, efficiency improvements can be
made economically in both new construction and existing buildings under the incentive
of higher energy prices. These improvements would reduce the intensity of electricity
use. On the other hand, such reductions could be offset by new uses of electricity in
production ant! household applications. In adclition, some established electricity appli-
cations, such as air conditioning and electric space heating still show potential market
growth.
Efficiency improvements through conservation and load management can also bene-
fit economic growth by reducing the long-term costs of electricity supply, and thus the
price of electricity.
Composition of National Output
Changes in the composition of national output toward less electricity-intensive goods
and services have been offset by growth in the intensity of electricity use within all the
major use sectors so that the combined effect on electricity demand growth has not
yet been great. However, if the trend toward a leveling off in sectoral electricity
intensity growth that began in the late 1970s continues, future shifts toward less
electricity-in~ensive goods and services are likely to dampen electricity demand growth
relative to national output.
Ax
OCR for page R20
Since 1950 the share of gross product originating in the commercial sector has in-
creased steadily, while that in the industrial sector as a whole has declined. The
electricity intensity of the industnal sector is about three times that of the commercial
sector so that shifts away from industry, other things being equal, would lead to a
decline in electricity intensity for the total economy.
There were large increases in average electricity intensity within all consuming
sectors after World War IT that more than counteracted the negative influences on
overall intensity from intersectoral shifts. However, almost all of the growth in
average sectoral intensity occurred prior to 1973. By 1983 industrial and commercial
sector electricity intensities were back near their values in 1973, and residential
electricity intensity remained at about its 1977 value. It is not yet clear whether these
recent declines in sectoral electricity intensity growth represent a new long-term trend
or only short-term responses.
Regional Differences
Valid conclusions about electricity demand drawn from national data do not necessar-
ily pertain to regional circumstances; there are significant regional differences in such
factors as economic output, prices, electricity supply mix, availability of generating
capacity, climate, and regulatory environment.
Regarding economic activity, the regional factors important to electricity consumption
include overall output, industry mix, labor and resource availability, and the relative
importance of a region's commercial and industrial sectors. Regarding energy use,
important regional factors include electricity and nonelectrical energy prices, electric-
ity supply mix, climate, and regulation. National policy decisions should be sensitive
to these regional differences.
xx
