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New England Electricity Demand: How Low Can You Go? (2018)
On May 1, 2018, ISO New England released its 2018 forecast for Capacity, Energy, Loads, and Transmission (CELT 2018). As the independent system operator, ISO New England is responsible for coordinating electric generation and sales in New England and for ensuring the reliable operation of the region’s electric grid. Each year, ISO New England releases a 10-year forecast for electricity demand in New England. State agencies, electric utilities, advocacy organizations, and ISO New England itself use the forecast to estimate future demand for electricity. The CELT 2018 forecast includes estimates of annual energy use, winter and summer peak demand, energy efficiency, and distributed solar from 2018 through 2027.
In part due to the impacts of increased energy efficiency and distributed solar, 2017 had the lowest observed annual electricity sales of any year since 1998. Looking forward in CELT 2018, ISO New England estimates that over the next decade, annual demand for electricity will decline by 0.86 percent per year, on average (see Figure 1). This decline is steeper than the estimates in CELT 2017 (-0.64 percent per year) and CELT 2016 (-0.25 percent per year). In fact, ISO New England’s forecast for energy has dropped lower and lower each year for the past five years. By 2027, ISO New England forecasts that the six New England states will use less electricity (on an annual basis) than at any point since 1996.
Figure 1 also compares the forecasted demand for electricity in CELT 2018 (shown in red) relative to an extrapolation based on the trend observed in the annual weather-normalized values from 2010 to 2017. Over the entire 2018-2027 period analyzed in CELT 2018, forecasted values exceed these extrapolated values by about 2 percent.
Figure 2 demonstrates these same trends for the annual summer peak. The summer peak forecast is critical because it drives the determination of future demand of New England’s generating capacity needs from power plants and informs planning of transmission lines. As with annual energy consumption, ISO New England’s forecasts for peak summer demand have steadily declined, with CELT 2018 forecasting that New England’s peak demand for electricity will be below 2004 levels by 2027 (on a weather-normalized basis).
Figure 3 demonstrates these trends for the annual winter peak. While New England remains a summer peaking electricity system (with a forecasted 2018 summer peak around 25 percent higher than the forecasted 2018/2019 winter peak), winter peak forecasts are important for assessing the impacts of electric system reliability during a period when much of New England’s energy infrastructure is dedicated to space heating (i.e., when interstate natural gas pipelines are used both for electricity generation and for heating homes and businesses).
As with the forecast for annual energy and summer peak, CELT 2018 presents a lower—and declining—trajectory for winter peak. In fact, for winter 2018/2019 (December through March), ISO New England forecasts a winter peak demand of 650 MW less than it did one year ago—a reduction roughly equivalent in size to the Pilgrim nuclear power plant in Plymouth, MA. By 2027, ISO New England forecasts that winter peak demand will be lower than in any winter since the early 1990s. Taking reduced forecasts for winter peak demand into account is essential in future analyses of electric system reliability impacts—these new projections of demand were not used in ISO New England’s recent Operational Fuel Security Analysis study, but were analyzed in a follow-up report.
Figure 3. Net winter peak demand for electricity in New England (after accounting for energy efficiency measures, distributed solar, and transmission and distribution losses)
The major driver in the difference in ISO New England’s gross load forecast this year (i.e., before taking into account reductions from energy efficiency and solar PV) is a change in how the ISO New England incorporates historical energy usage and how it estimates future macroeconomic trends. The basis for each CELT forecast is an econometric model that forecasts future gross load and energy needs in the region, which is developed using historical energy usage in the region and macroeconomic forecasts as the key inputs.
Each year, ISO New England receives and relies upon an analysis of regional, and state-level, macroeconomic indicators from Moody’s Analytics, who forecast changes to the region’s gross domestic product, employment, housing stock, and population. Since around 2009, the economy has grown independent of growth in electricity consumption nationally and, in particular, at the regional level in New England. While Moody’s Analytics continues to forecast 2 percent growth per year (or so) in the economy every year in New England, such growth no longer appears to require a corresponding growth in either peak or annual energy usage in the region, a shift that appears to have been captured in CELT 2018.
Differences in ISO New England’s net forecast for 2018 are influenced by updates to its energy efficiency and distributed solar forecasts. ISO New England (a) updated the values in their forecast of behind-the-meter PV to recognize increased deployment of distributed solar throughout the region, and (b) made several updates to the methodology for forecasting energy efficiency to attempt to more accurately capture increased deployment of energy efficiency measures, such as high-efficiency appliances, insulation, and LED lightbulbs. In addition, for the first time this year, ISO New England has updated its energy efficiency forecast methodology to account for more recent estimates of the likely energy efficiency in the next few years. ISO New England estimates that had they made this change last year, the 2017 CELT forecast of summer peak would have been 400 MW lower.
However, ISO New England’s estimates of future distributed solar and energy efficiency continue to have known deficiencies, including problematic assumptions regarding the discounting of state policy requirements, future technology costs trends for both solar and efficiency measures, disappearance of tax credits, and other state-specific incentives. Underestimating energy efficiency and distributed solar could lead to overstated forecasts for electricity demand, possibly resulting in unneeded investments in new power plants, transmission projects, and natural gas pipelines. In recent years, Synapse has calculated its own forecast for energy efficiency and distributed solar, as published in the 2017 report Challenges for Electric System Planning. Synapse will continue to examine CELT 2018 and looks forward to publishing updates to its New England energy efficiency and distributed solar estimates in the coming months.
Finally, it is important to note that ISO New England’s forecasts make no explicit assumptions regarding the future electrification of other sectors, including heating (via high-efficiency heat pumps) or the transportation sector (via electric vehicles). For instance, Bloomberg New Energy Finance forecasts that electric vehicles will be “price competitive on an unsubsidized basis beginning in 2025,” indicating that by the end of the forecast period for CELT 2018, the region may be in the midst of a substantial shift towards electrification of the transportation industry. Going forward, these trends will be increasingly important to follow and capture in future forecasts by ISO New England.