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What’s Driving US Electricity Sales Down?

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May. 24 2016, Published 6:47 p.m. ET

Electricity sales in 2015

In 2015, we witnessed a 1.1% fall in total electricity sales compared to 2014. This was the fifth fall in total electricity sales in the last eight years. This fall was triggered due to neutral growth in the residential and commercial sales while industrial sales took a dip. Demand from all the customer categories declined in 2015 due to market saturation and energy efficiency programs.

What's Driving US Electricity Sales Down?

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Drivers of the fall

Electricity consumption has fallen as the penetration of efficient electricity-using equipment has increased. The slowing growth of the economy and warm weather also had negative impacts on the electricity demand. But energy efficiency programs are generally market-driven, given by the consumers’ as well as commercial interests.

Residential sector forms a large chunk of total electricity sales as nearly 38% power demand comes from this customer class. Weather drives the home cooling and heating requirements of consumers in the short term, whereas structural modifications in the housing sector affect the long-term trend.

Commercial and industrial

The commercial sector’s average electricity demand growth is 1.1% over the past fifteen years. In 2015, the commercial sector contributed 36% in total electricity sales. Similar to the residential sector, electricity (VPU) demand from the commercial sector in the short term is driven by weather.

Contributions from industrial sector’s electricity sales fell from 31.2% to 25.8% over the past eight years. In the past fifteen years, total sales from the industrial sector have declined by an average of 0.7%. Power sales of industries are sensitive to economic conditions. Power-intensive industries have expanded in line with the industrial sector while energy efficiency has triggered the fall in electricity sales.

These eroding sales are troubling utilities (XLU) as their core businesses are offering trivial growth prospects. Leading utilities like Duke Energy (DUK), Southern Company (SO), and Dominion Resources (D) are also heavily investing in non-electric growth opportunities.

In the next part, we’ll discuss the natural gas takeover of coal.

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