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Annual Energy Outlook 2015

Release Date: April 14, 2015   |  Next Release Date: March 2016 |  correction  |  full report

Market Trends: Residential energy demand

Residential energy intensity drops across a wide range of technology assumptions

In the AEO2014 Reference case, the intensity of residential energy demand, defined as annual energy use per household, declines by 16% between 2012 and 2040 (Figure MT-10). Energy use for lighting, space heating, and water heating accounts for most of the decline. While household energy intensity decreases, total delivered energy consumption in the residential sector increases by about 5%, with the number of homes growing by 26% over the period. More use of distributed generation, such as from rooftop solar panels, would further reduce delivered energy intensity, but it is not projected to have a large effect, because electricity from distributed generation sources accounts for a small percentage of total electricity use in households over the projection period.

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Electricity use per household declines from 2012 to 2040 in the Reference case

Annual electricity demand for the average household in the Reference case declines by 4%, from 12.1 megawatthours (MWh) in 2012 to 11.6 MWh in 2040. In 2012, the largest uses of electricity at the household level are space cooling, small devices and other minor electric end uses, and lighting. In 2040, electricity consumed for lighting per household is 65% lower, and electricity use for minor electric end uses and for space cooling rises by 33% and 17%, respectively (Figure MT-11). Regulations implementing lighting efficiency standards established by the Energy Independence and Security Act of 2007 (EISA2007) are a major factor in the replacement of incandescent bulbs with more efficient compact fluorescent lighting (CFL) and light-emitting diode (LED) lamps.

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Although electricity consumption for most end uses declines on a per-household basis between 2012 and 2040, electricity consumption at the sectoral level increases for most end uses because of growth in the number of households. Most of the growth at the sectoral level comes from increasing market penetration of smaller electric devices, which have little coverage by efficiency standards, and by a growing need for cooling as the U.S. population shifts to warmer climates in the South.

From 2012 to 2040, residential electricity use grows by 21% as the fuel mix in the residential sector moves increasingly toward electricity. Petroleum and other liquids lose fuel share for every end-use service, and particularly for space heating, where both electricity and natural gas gain share. Natural gas loses fuel share in every end-use service except space heating, and it continues to account for more than half of the fuel consumed for space heating, water heating, and cooking through the projection. In 2040, overall natural gas use in the residential sector is 1% lower, and petroleum and other liquids use is 35% lower than in 2012.

Continuing efficiency gains restrain growth in residential electricity use

In the AEO2014 Reference case, electricity is the only fuel for which demand increases in the residential sector from 2012 to 2040, in part as a result of population growth, regional population shifts, and temperature assumptions. Electricity is affected more than other fuels by the increased adoption of new and existing uses. In the Reference case, which includes only existing and announced standards and codes, residential electricity demand grows by 0.7%/year from 2012 to 2040 (Figure MT-12). In the Extended Policies case, which assumes additional rounds of appliance standards and building codes in the future, residential electricity use increases by 0.2%/year from 2012 to 2040. In contrast, residential electricity demand grew by an average of more than 2%/year over the previous 30 years.

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Most of the announced standards in the Reference case are scheduled to take effect in the near term. For instance, the Reference case includes changes in minimum efficiency levels for refrigerators and freezers in 2014 and for central air conditioners, air source heat pumps, and electric water heaters in 2015. The most distant standard assumed in the Reference case is the 2020 standard for general service lighting, which is a part of the second wave of congressionally-mandated standards
from EISA2007.

Given the long lifetimes of most major residential equipment (10 to 30 years), it can take years for an appliance standard to affect the majority of installed equipment; but once the standard has been fully incorporated, electricity consumption tends to increase in line with the growth of housing stock (0.8%/year from 2012 to 2040)—as occurs around 2020 in the Reference case but not until 2035 in the Extended Policies case.

Extending tax credits supports increased residential use of renewable energy sources

Electricity generation capacity from residential solar photovoltaic (PV) and wind technologies roughly doubled from 2010 to 2012. In the AEO2014 Reference case, it doubles again in both 2014 and 2016 before slowing considerably as a result of the planned expiration of the investment tax credit (ITC) after 2016. Without the tax credit available, almost two decades pass before annual additions to residential distributed generation capacity surpass 0.5 gigawatts (GW), as they have in recent years.

Two alternative cases present more optimistic scenarios for further growth in residential distributed generation, either by extending the tax credits or by lowering installed costs. With the ITC extended beyond its legislated 2016 expiration date in the No Sunset case, residential renewable capacity doubles twice from 2013 to 2019, again from 2019 to 2024, and again from 2024 to 2034. In 2040, more than 67 GW of solar and wind capacity is installed in the residential sector, as compared with less than 2 GW in 2012 (Figure MT-13).

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The Low Renewable Technology Cost case includes the tax credit through 2016, as in the Reference case, but assumes lower installed costs than in the Reference case. Even in the Reference case, installed costs for renewable technologies decline from their present values. For example, solar PV installed costs fall from around $5,400 per kilowatt (kW) in 2012 to around $3,270 per kW in 2020 and around $2,900 per kW in 2040.

The Low Renewable Technology Cost case assumes an additional 20% reduction in installed costs after 2013, resulting in increased adoption of both solar PV and wind technologies for electricity generation, especially in locations with the combination of high electricity prices and sufficient renewable resources. By 2040, more than 25 GW of renewable capacity is installed, 10 GW more than in the Reference case.