“Tumultuous” is the word the Energy Information Administration (EIA) used to describe energy markets in 2008 in March.  Now, just one month after releasing its 2009 Annual Energy Outlook (2009 AEO), the EIA has revised that AEO to reflect both economic changes as well as policy changes made in the American Recovery and Reinvestment Act (ARRA).

The EIA initiated the revision after passage of the ARRA, however, the Administration took the opportunity to incorporate an update of macroeconomic assumptions.  The update reflects the data showing that gross domestic product (GDP) growth rates are substantially lower in the short term and that industrial output growth is lower, as exports and investment show slower projected growth. 

According to the revised 2009 Annual Energy Outlook, electricity demand will increase by 23 percent from 2007 to 2030, or by an average of .9 percent per year.  This number represents a significant drop from a year ago, when demand growth was projected at 30 percent.

The revised 2009 AEO projects significant efficiency gains as a result of the ARRA.  Some highlights include:

• Weatherization and efficiency improvements spurred by ARRA funding affect household heating and cooling energy use the most, reducing heating consumption by 1.7 percent in 2030 and cooling consumption by 3.4 percent in 2030.
• Over the 2009 to 2030 period, annual non-transportation household energy expenditures average $64 (real 2007 dollars) lower with ARRA, with a peak year difference of $98 (4.5 percent) lower in 2028.
• ARRA funding for Federal buildings and the State Energy Program funds efficiency improvements for public buildings, reducing commercial fuel oil consumption by 3.0 percent in 2030.

Even without climate change legislation, EIA projects decreased carbon dioxide emissions as a result of ARRA’s renewable energy and energy efficiency investments: 

Energy-related carbon dioxide emissions in the updated reference case with ARRA are 1.3 percent lower than in the no-stimulus case in 2013…. By 2030, they continue to be below the level in the no-stimulus case, but only by 0.6 percent. Again, the emission changes largely result from ARRA’s energy-efficiency and renewable incentives that lead to reduced use of fossil fuels.

Nevertheless, the prospect of greenhouse gas regulation appears to be affecting investment decisions in the electricity sector.  The 2009 AEO released in March confirmed worries at the North American Electric Reliability Corporation that electricity generators looking to build capacity are switching to gas:

In addition to ongoing uncertainty with respect to future demand growth and the costs of fuel, labor, and new plant construction, it appears that capacity planning decisions for new generating plants already are being affected by the potential impacts of policy changes that could be made to limit or reduce GHG emissions.

The 2009 AEO shows “much less new coal capacity than projected in recent editions of the Annual Energy Outlook (AEO)”:

Instead of relying heavily on the construction of new coal-fired plants, the power industry constructs more new natural-gas-fired plants, which account for the largest share of new power plant additions, followed by smaller amounts of renewable, coal, and nuclear capacity. From 2007 to 2030, new natural-gas-fired plants account for 53 percent of new plant additions in the reference case, and coal plants account for only 18 percent.

See the “related links” box for a link to the revised 2009 AEO.