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Good news for consumers might mean bad news for electric companies and their stockholders: the Wall Street Journal reported this weekthat American electricity consumption has been declining for five years, even as the economy has improved.

American retail electricity sales peaked in 2008, at 3.77 trillion kilowatt-hours, whereas the 2013 total was only 3.69 trillion kilowatt-hours – a two percent drop from 2008. Yet America in 2013 had over 12 million people more than in 2008 – and a typical American in 2013 likely owned more electric or electronic devices, appliances and gadgets than her circa-2008 counterpart, too.

When American electricity consumption dropped in 2009, electric companies initially blamed the recession: utility customers are probably trying to save money, but surely electricity use will pick up again once the economy does! Except that didn't happen — the recession ended, but the electricity decline did not.

Warmer climates

The Journal mentioned a couple of different trends which likely share the blame: part of the drop in residential electricity consumption is because more Americans these days live in generally warm regions, where their main climate-control needs require air conditioning rather than heat. (Although it might sound paradoxical, modern technology means that cooling a home generally requires less energy than heating one.)

The changing face of American industry also shares some of the blame: as manufacturers leave this country and re-settle overseas, they (obviously) take their need for electricity with them.

Also, modern appliances tend to be more efficient and require far less electricity than their earlier counterparts. To offer just one example: the U.S. Energy Information Administration said that in 2005, the average refrigerator needed 840 kilowatt-hours of electricity to operate each year, yet a typical refrigerator sold in 2010 requires only 453 kilowatt-hours.

The statistic “How many Americans in 2014 still use circa-2005 or older refrigerators in their kitchens” is not available, but the answer is almost certainly, “Millions, no doubt.” Yet that number shrinks every year, probably every month, whenever the owner of an old fridge decides it's finally time to upgrade.

The Journal also made brief mention of solar panels and other alternative-energy sources:

Increasingly, both residential and business customers are making their own power rather than buying it from utilities. In Arizona, for example, solar companies are siphoning off utility customers.

Sherry Pfister, a retiree who once worked at the Palo Verde nuclear power plant 45 miles west of Phoenix, says she didn't hesitate to lease solar panels for her home in Waddell, Ariz., and says the panels have cut her utility bill by a third.

“Why isn't everybody doing it?” she wonders.

Pfister likely meant that as a rhetorical question, but here's one possible answer: not everybody lives in a sunny desert region like Arizona, and the technology is not yet good enough to be useful in more overcast regions. Even in sunny areas, it can be dificult to afford the upfront cost of the panels.

Demand destroyers

A couple days later, an energy blogger for Slate suggested that the Journal's remarks about solar panels and efficient refrigerators actually should have been the core focus of their story; Daniel Gross said that declining American electrical consumtion goes “beyond energy efficiency: we're not just reducing demand for electricity — we're destroying it.”

Basically, Gross suggests that the real cause of declining electricity sales is that the industry in general is undergoing a case of demand destruction.

Demand destruction, as the name suggests, describes what happens when social, technological or economic changes destroy the previous demand for a commodity, good or service. For example: the photographic film industry experienced massive demand destruction once digital cameras (and phones equipped with them) became cheap and ubiquitous.

The perennial financial difficulties of the U.S. Postal Service can also be blamed on demand destruction: the post office traditionally relied on first-class mail (mainly letters and greeting cards) for the bulk of its operating income, but cheap and instant communication technologies including email, text messaging and free long-distance calls have killed most of the market (or destroyed most of the demand) for writing and mailing letters.

And the modern electrical-utility industry is facing demand destruction too. As Slate said:

The price of solar panels has come down dramatically in recent years, and new business models, such as SolarCity’s leases, have substantially reduced the costs associated with installing rooftop electricity generation systems. As a percentage of overall electricity production, solar is minuscule. But each panel represents a bit of demand destruction. And when a company puts solar panels on the roof of a big-box retailer, as Ikea has done on 40 of its U.S. stores, or as Walmart has done (89 megawatts of capacity at 215 locations as of last fall), it is effectively destroying a decent chunk of demand over the 20-year life of the system.

While solar production (or at-home electricity generation in general) comprises only a tiny percentage of American electricity use today, it's important to remember that the industry is still relatively young, and the technology primitive compared to what the future will likely offer.

That said, it's still possible that, despite the growing use of solar panels, energy-efficient appliances and other forms of electric-company demand destruction, that destruction might one day slow down or even reverse thanks to another technological innovation: electric cars.

Right now, electric cars really aren't a viable alternative to internal-combustion vehicles, mainly because of their batteries: recharging an electric car requires the vehicle to be plugged in overnight, (compared to the five minutes or less you need to fill a car's empty gas tank). But if electric-car technology improved to the point where recharging a battery was as easy as filling a tank, the demand for such cars would skyrocket — and so would the demand for electricity.


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