Declining electricity consumption and inertia

Interesting article pointing out the way US residential electricity consumption is levelling off and may decline due to technological changes.

A couple of thoughts:

  • Replacing an electric water heater with a gas one may be an electricity saver, but I honestly don’t know whether this is ultimately more efficient or not.
  • The article does reference potentially power hungry future developments such as plug-in hybrids or other electric vehicles, but the extent of uptake here is unknowable. Hydrogen vehicles may well ultimately take off and surpass EVs unless something dramatic happens to battery capacity, charging time and useful lifetimes.

But really, is anyone surprised? As the cost of electricity and energy in general goes up, the investment in research and development for technology to lower energy usage will go up. Over time, this leads to cost-benefit appropriate energy saving gismos. Of course, a little careful regulation in the meantime can do much to provide confidence to invest in the R&D and increase the potential upside from the technology thus developed.

It’s also an area where regulation is needed to counter the inevitable intertia derived from network effects. If everyone uses incandescent bulbs, they are cheap, everyone stocks them, the fittings are cheap and standardised and everyone knows how to install them. Who really wants to go a non-standard route? By credibility demonstrating that change is coming, and ideally by giving clarity on future standards, the inertia can be limited. Don’t let any free market fanatic talk you around this point. Network effects and inertia are real and they are not part of the free markets for everyone models.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

Leave a comment

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.