Will  Electricity Sales Ever Grow (Again)?


by   Leonard S. Hyman and William I. Tilles


The Energy Information Administration (EIA) predicts that electric generation and sales will return to 2019 levels in 2022. Economists predict that America’s  population will rise 1.6% and its real gross domestic product 6.2% from 2019 to 2022. Perhaps the EIA’s analysts didn’t notice those numbers when they did their projections?  The domestic economy can’t advance without a commensurate rise in electricity output, can it?  Well, it can, and has done so  for the past fifty years. We believe this  relationship between electric sales and economic activity is about to change, dramatically.

Electricity generation vs economic activity (1970-2020)

We can explain the divergence between electricity output

and  economic activity  in several ways: the increasing offshoring of US manufacturing to Asia and elsewhere, the slowdown in population growth (exacerbated by the limitations on immigration), or possibly the increasing divergence in income levels (electricity consumption does not go up lock step with income).  At the same time, though,  we  have become less profligate in energy usage so we now produce more per KWH consumed.


We expect this long term pattern of economic growth and flat electricity sales to change soon. The reasons? The combination of the growing “electrify everything” movement coupled with popular recognition of the severity of climate change and emerging mitigation policies. In addition, warmer, more humid weather will increase air conditioning penetration and usage significantly. Greater economy-wide electrification, with an eye towards significant pollution reduction, in areas of transportation, heating and industrial processes will take business from oil and gas companies and further transfer it to electricity providers. 


How much more demand does this imply for U.S.  electricity providers and how soon? That depends in part on government policy, the implementation of carbon taxes and the like. We have seen indications that that U.S. electricity usage might increase 50-100% over twenty years. If so, that would raise the electric industry’s annual growth rate from less than 1% to 2.0-3.5%. These percentage changes seem modest in the abstract but imply literally trillions in incremental utility capital spending over two decades. not counting the cost to maintain the existing grid. But there is always something. The electrification trend implies people will consume more electricity in the future as they switch to electric vehicles. But they might not buy it all from legacy, monopoly utilities. To put it simply, the business will be there but the legacy suppliers might have to hustle to get it.



Leonard S.Hyman is author of America’s Electric Utilities: Past, Present and Future. He headed utility and telecommunications research at one of America’s largest brokerage houses, consulted on privatizations and served on a number of state and federal advisory panels.  William I. Tilles is a consultant, who was a credit analyst at one of the leading rating agencies, an equity analyst at leading brokers and research, and later managed  the world’s largest long/short utility hedge fund. Both authors are regular columnists on OilPrice.com.

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