ACHRNEWS

Report Discusses Energy Consumption

December 15, 2008

The first couple of paragraphs of the Department of Energy/Energy Information Administration’s (DOE/EIA’s) Annual Energy Outlook 2008 (AEO 2008) reads like a warning.

The report indicates that its energy consumption scenario, which forecasts out to 2030, “assumes that current policies affecting the energy sector remain unchanged throughout the projection period.”

In fact, the report says we are already changing our energy habits. According to the report, “energy markets are changing in response to readily observable factors, which include, among others: higher energy prices; the growing influence of developing countries on worldwide energy requirements; recently enacted legislation and regulations in the United States; changing public perceptions on issues related to emissions of air pollutants and greenhouse gases (GHGs) and the use of alternative fuels; and the economic viability of various energy technologies.”

“Worldwide energy requirements” and “higher energy prices” aside, in fact, the report sounds relatively optimistic. For HVAC contractors helping their large and small customers deal with those energy prices, the combined interest in public perceptions and alternative fuels and new technologies sounds like business opportunities on the near horizon. It’s worth pointing out that 30 percent of the emissions in question are coming from the energy produced for commercial building mechanical systems, according to ASHRAE (American Society of Heating, Refrigerating, and Air-Conditioning Engineers). It’s the lion’s share.

Specifically, the report points towards:

• Higher price projections for crude oil and natural gas.

• Higher projections for delivered energy prices, reflecting higher costs to transport, distribute, and refine fuels.

• Slower projected growth in energy demand - particularly for natural gas, but also for liquid fuels and coal.

• Faster projected growth in the use of nonhydroelectric renewable energy.

• Higher short-term projections for domestic oil production.

• Slower projected growth in energy imports of natural gas and oil.

• Slower projected growth in energy-related emissions of carbon dioxide (CO2).

See? Changes are already happening. The government said so. In fact, the report predicts that the energy expenditures relative to gross domestic product will decline. It will cost less to produce goods. But let’s look at a few specifics that have particular impact on the HVACR industry.

ELECTRICITY DEMAND

According to the report, the biggest growth in demand in the U.S. is still coming from the residential and commercial sectors. “Electricity demand grows by 27 percent in the residential sector and by only 3 percent in the industrial sector,” it states. “Population shifts to warmer regions also increase the need for cooling.”

The DOE/EIA report also predicts that higher electric energy prices will increasingly encourage investment in energy-efficient equipment. “In both the residential and commercial sectors, continuing efficiency gains in electric heat pumps, air conditioners, refrigerators, lighting, cooking appliances, and computer screens slow the growth of electricity demand.”

Energy prices are expected to drop in the near term. However, once they reach their lowest level (currently predicted around 2017), they will steadily climb again.

Here’s the specific prediction: “… prices for fossil fuels delivered to electricity generators peak between 2005 and 2010, as the result of a boom in U.S. and foreign demand, combined with constraints on supply growth and political instability in oil- and gas-producing nations. Fossil fuel prices fall in the middle years of the projection, however, as new supplies come on line to meet growing demand. Prices then increase steadily as demand once again starts to outpace supply.”

DEMAND-CONTROLLED GENERATION

Perhaps surprisingly, the agencies report that most areas of the United States currently have excess generation capacity. Less surprisingly, however, “all electricity demand regions are expected to need additional, currently unplanned, capacity by 2030. The largest amount of new capacity is expected in the Southeast, which represents a relatively large and growing share of total U.S. electricity sales and thus requires more capacity than other regions. The growth in demand for electricity in the Southeast is well above the national average.”

Coal-fired plants are expected to account for the largest share of capacity additions through 2030, “given the assumption that current environmental policies are maintained indefinitely.” Most new coal-fired plants will be added in the Southeast. The capacity will be needed primarily to accommodate cooling needs.

Natural gas, renewable, and nuclear plants represent the remaining capacity additions. About 75 percent of the additions are located in the Southeast, the West, and the Midwest. Renewable capacity is also needed because of state and federal renewable energy policies; the Midwest accounts for the largest share of renewable capacity additions.

One energy firm in the Carolinas, Progress Energy, is combining new capacity with technologies that can offset consumption. The company has partnered with several contractors in the area to help customers meet their energy needs. It is also working on renewable resources.

“Progress Energy has more than enough generation capacity to meet current electricity demands,” the company reports online; “but to ensure power for the future, we plan ahead 10 years or more. Our planning tells us that by 2016, another 300,000 new customers in the Carolinas will be depending on Progress Energy to provide reliable power 24 hours a day.”

The company said its service area is expanding 25,000-30,000 new homes and businesses each year. “Progress Energy Carolinas has announced a goal of displacing 2,000 megawatts (MW) of power generation through demand-side management and energy-efficiency programs.” The company currently saves approximately 1,000 MW in its existing programs. “The additional 1,000-MW reduction would be equivalent to the capacity of more than six combustion-turbine power plants.”

The company’s solution to meeting its customers’ energy needs focus on three main components:

1. Increased energy efficiency.

2. Investments in renewable energy sources and other emerging energy technologies.

3. Upgrading existing power plants and investments in new plants when needed.

The emphasis, apparently, will be on increased efficiency. The company’s Website features a list of contractors qualified to help customers assess and meet their energy needs through increased efficiency and the applications of new technologies. The company also details its investments in alternative energy, including a solar energy farm.

NATURAL GAS

Natural gas has been used in electricity generation, which has increased its demand and made its costs more sensitive to changes in demand. “Natural gas consumption in the electric power sector is highly responsive to price changes, because electricity producers can choose among different fuels on an ongoing basis,” stated the DOE report.

“In contrast, consumption of natural gas in the residential, commercial, and industrial sectors is influenced not only by fuel prices, but also by economic trends. In those sectors, natural gas consumption increases steadily from 2006 through 2030.”

When natural gas prices are high, electric power producers typically switch to another fuel to get a better price. Most residential and commercial consumers have not had this option, unless they have been guided toward the purchase and installation of a dual-fuel system.

As predicted for electricity generation, costs for natural gas are expected to drop briefly as new immediate sources are found. Then they will climb back up, becoming even more unstable as the U.S. natural gas market becomes more allied with global natural gas markets. “As a consequence, international market conditions will have a stronger influence on domestic natural gas prices in the United States, causing even greater uncertainty in future U.S. natural gas prices,” the report stated. You might say it will bear a stronger resemblance to today’s oil-based fuel markets.

What’s a contractor to do? What the good contractor has always done: Educate themselves on these trends, pass the information along to their customers, and work together to find the best solutions for each customer’s needs.

Publication date: 12/15/2008