Over the past fifty years, the production of goods has accounted for an ever-diminishing share of the North American economy, with the shares of transportation, trade and services increasing. This does not mean that North Americans are any less materialistic, but rather that our goods are increasingly manufactured outside of North America. Making things generally takes a lot of energy, relative to the production of services: as a result, the amount of energy (in BTU5) required to produce a billion dollars of North American GDP (in constant dollars) has fallen by almost 50 per cent since the end of the second world war.
While GDP is less energy intensive, consumption is not: per capita consumption (BTUs per capita) of energy in North America increased by more than 60 per cent over the same period. Residential and commercial energy consumption now essentially equals industrial consumption, while fifty years ago residential and commercial uses consumed only two thirds of what industry did. Air conditioners, fridges, VCRs, microwaves, camcorders and computers not only revolutionized living, they also increased, and are increasing, energy demand significantly.
Appropriately, given the digital and appliance revolution, the greatest increase in energy consumption was of electricity. While per capita energy consumption increased by 60 per cent, per capita electricity consumption increased by 350 per cent. In terms of consumption, coal was the big loser of market share, going from 30 per cent of total consumption to 3 per cent, while electricity was the big winner, going from 15 per cent to almost 40 per cent. (The drop in coal's share on the production side is not nearly as significant, as much electricity is made from coal: in the 1950s, over a third of all energy was produced using coal, compared to slightly less than a quarter now.)
The structural shift in North America's economy has changed the drivers in the demand for energy in general, and electricity in particular, with population growth, rather than industrial locations, being the focus of demand (and hence the California electricity crisis). The future pattern of increasing power demand will be the pattern of population growth in North America.
While per capita consumption of electricity is not likely to grow as much in the future as it has in the past (as most households now have a pretty full complement of electrical consumer products), the total demand for electrical energy will. The population of the United States is projected to increase by 60 million people in the next twenty-five years, and that of Canada by 6 million, for a 22 per cent increase in the population in the North American energy market, with any increases in per capita consumption adding to this increase in demand.
This growth will be concentrated in a few regions. Three states in the United States will account for half of the growth: California is projected to grow by 16.8 million, Texas by 7.1 million, and Florida by 5.5 million. Add (in order of additional population) Georgia, Washington, New York, Arizona, North Carolina, Virginia, and Illinois, and ten states will account for more than two thirds of the United States population growth in the next twenty-five years. The ten most rapidly growing states, all either on the west coast or across the southern half of the country, will account for 60 per cent of the nationŐs growth. In Canada, almost 60 per cent of the 6 million person population growth over the next twenty five years will be in Ontario, with BC, Alberta, and Quebec accounting for almost all of the rest.
This does not necessarily mean a stable future in electrical energy markets. Part of the variance will result from the spatial gap between generation and demand. Traditionally, electric power was produced where the energy resources were and transmitted to where the consumers were. This is not a particularly efficient system, when approximately 9 per cent of electricity generated is lost in transmission and distribution. As well, the capacity of many long distance transmission lines is not adequate to handle current peak demand, and certainly not future increased demand.
This has lead to an increasing emphasis on reducing the distance between generation and consumption, by producing the electricity closer to the consumer using natural gas fired generators.
Natural gas now exceeds hydro as a source of power generation in the United States: the future problem in this regard lies with the fact that natural gas transmission lines into the high growth states are also facing capacity limits.
Much of the variance will come from the changing structure of the power industry. The recent California electricity crisis was a windfall for Canadian electricity exporters: it should be treated as such. Canada is NAFTA's net electricity exporter, exporting over 6 per cent of our production, with both United States and Mexico being net importers. But our exports account for only 1 per cent of the United States consumption, a margin that can disappear quickly and permanently. An effective energy conservation program in the United States or a strong increase in US production capacity can eliminate export demand. So can deregulation.
In both Canada and the United States, generation by independent power producers, small producers and co-generators is anticipated to increase much faster than that by major utilities. It is true that increasing consumer prices will lead to increased generation of electricity, but it is also true that they will lead to reductions in consumption, and for electricity imports.
More than ever, the future of electricity generation will be in the business of providing warm showers, cold beer, and entertainment. With an increasing share of demand driven directly by households, and indirectly by the industries that provide goods and services to consumers, electricity producers will be increasingly aware that population matters.
David Baxter is Executive Director, Urban Futures Institute. He made this presentation to the recent annual meeting of the Independent Power Producers Society of Alberta (IPPSA). ET