Market Trends: Residential energy demand

Residential energy intensity declines across a range of policy assumptions

The intensity of residential energy demand, defined as annual delivered energy use per household, declines by 18% from 2015–40 in the Reference case (Figure MT-10). The major factors leading to the decline include energy efficiency policies and standards and population shifts to warmer climates in the south and west. Space heating and water heating account for almost 74% of the reduction in energy intensity and lighting for about 15%, primarily as a result of the phasing in of the light bulb efficiency standards mandated by the Energy Independence and Security Act of 2007 [8]. The continued growth of renewable capacity in the residential sector, such as rooftop solar photovoltaic panels, also reduces delivered energy intensity, given that solar panels are considered to be a distributed generation source rather than delivered energy purchased from a centrally located utility or energy provider.

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The AEO2016 Reference case includes all current laws and regulations, including the Clean Power Plan (CPP) [9]. Alternative cases model the effects of different policy assumptions on residential energy intensity. In the No CPP case, which assumes no implementation of the CPP, there are fewer rebates and subsidies for efficient end-use equipment. In the Extended Policies case, there are additional rounds of appliance standards and building codes, as well as the extension of tax credits for efficient equipment and distributed generation technologies, including solar photovoltaics and wind. As a result, household energy intensity declines by 18% from 2015 to 2040 in the No CPP case and by 25% in the Extended Policies case. The CPP assumptions in the Reference case lead to additional efficiency improvements for electricity end uses, particularly lighting and electric heating, ventilation, and air conditioning (HVAC) appliances. Assumptions in the Extended Policies case lead to lower consumption as a result of efficiency gains in all residential fuels (particularly fuels used for HVAC and water heating), including electricity, and an increase in distributed generation.

Electricity use per household declines 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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Annual electricity demand for the average household declines by 11% in the Reference case, from 12.1 megawatthours (MWh) in 2015 to 10.8 MWh in 2040. In 2015, 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 small devices and other minor electric end uses per household is 13% higher, and electricity use for lighting and space cooling per household is 62% lower and 9% lower, respectively (Figure MT-11). The growth in electricity use per household for small devices and other minor appliances results from the continued proliferation of appliances available and adopted by consumers. Regulations implementing the lighting efficiency standards in the Energy Independence and Security Act of 2007 are a major factor in the replacement of incandescent bulbs with more efficient lighting technologies, including light-emitting diode lamps and compact fluorescent lighting, which results in the decrease in electricity use for lighting. Space cooling energy use per household declines as efficiency improvement more than offsets the increased load due to the shift of population to warmer climates. Also contributing to the decline is increased distributed generation, particularly rooftop solar, that offsets purchased electricity sales.

Although electricity consumption for most end uses declines from 2015–40 on a per-household basis, electricity consumption for the residential sector as a whole increases as a result of growth in the U.S. population and number of households. Most of the increase results from market penetration of smaller electric devices, most of which are not covered by efficiency standards, and from growing demand for space cooling as the U.S. population shifts to warmer climates in the South and West. Overall, residential electricity use grows by 9% from 2015–40, as the fuel mix in the residential sector moves increasingly toward electricity. Petroleum and other liquids lose fuel share for almost every residential end-use service, 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 water heating but continues to account for more than 50% of the fuel consumed for space heating, water heating, and cooking. In 2040, total natural gas use in the residential sector is 1% lower, and petroleum and other liquids use is 34% lower, than in 2015.

Residential sector energy consumption shows little change from 2015 to 2040

In the Reference case, total delivered energy use in the residential sector is virtually unchanged from 2015–40 (Figure MT-12), while the number of households grows by 0.8%/year. As a result, residential sector energy intensity declines [10]. Over the same period, consumption of purchased electricity increases by 0.3%/year. Although demand for electricity is affected more than other fuels by the adoption of new uses, consumption of electricity for residential lighting declines in the Reference case. The use of natural gas for residential space heating and water heating remains nearly flat over the 2015–40 period.

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Residential distillate fuel consumption declines by an average of 2.4%/year in the Reference case, as a result of decreasing use of distillate fuel for space and water heating. The price of distillate fuel rises relative to the prices of natural gas and electricity. Similarly, propane consumption in the residential sector falls by an average of 0.9%/year as its use for home and water heating continues to decline. The cost of propane remains lower than the cost of electricity for residential uses but increases relative to the cost of natural gas over the projection period.

Investment tax credit extension increases adoption of renewable energy sources

Distributed electricity generation in the residential sector, including solar photovoltaic (PV) and wind technologies, increased tenfold from 2010–15. In the Reference case, it more than triples from 2015–20, in part as a result of financial incentives for residential distributed generation. The 30% federal investment tax credit (ITC) for solar technologies that was slated to expire at the end of 2016 has been extended through 2019 and currently is scheduled to be phased out gradually from 2020–21. In the Extended Policies case, the 30% ITC continues indefinitely.

The Extended Policies case represents a more optimistic future for the growth of distributed generation in the residential sector, based on the tax credits available for installations of solar and other distributed generation technologies. With the ITC extended beyond its currently legislated 2016 expiration date for wind and a 2022 phaseout date for solar, residential generation doubles in the Extended Policies case from 2021–28 and more than doubles from 2028–40. Residential distributed generation, including solar and wind, totals 199 billion kilowatthours (kWh) in 2040, compared with 10 billion kWh in 2015 (Figure MT-13).

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The effects of the ITC on installation costs for residential distributed generation systems are significant. For example, solar PV installation costs (excluding tax credits and other financial incentives) fall in the Reference case from $4,042 per kilowatt (kW) of capacity in 2015 to $2,387 per kW in 2025 and to $2,170 per kW in 2040. Along with declining installation costs, the 30% tax credit in the Extended Policies case increases the adoption of renewable electricity generation technologies in the residential sector.

Endnotes

8. U.S. Senate and House of Representatives, “H.R. 6, Energy Independence and Security Act of 2007” (Washington, DC: January 4, 2007), https://www.gpo.gov/fdsys/pkg/BILLS-110hr6enr/pdf/BILLS-110hr6enr.pdf, p. 86.
9. U.S. Environmental Protection Agency, “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units” (Washington, DC: October 23, 2015), https://www.federalregister.gov/articles/2015/10/23/2015-22842/carbon-pollutionemission-guidelines-for-existing-stationary-sourceselectric-utility-generating.
10. The AEO2016 Reference case includes only existing and announced standards and codes.