When we think about residential energy use, the most important things are heating, hot water and cooling (gas stoves are insignificant). Although there are large regional differences, gas and electricity account for roughly equal (and dominant) shares of US residential energy consumption.
This picture, however, is incomplete. Household energy consumption also includes anything not used in the house but parked in the garage or on the street. Light vehicles use about as much energy as all other residential sources combined.(1)
This reality confronts Americans where it counts: their wallets. On average, motor fuel takes up 2.1% of personal disposable income, which is more than the combined total of 1.6% of electricity and gas bills.(2) Gasoline also tends to be the most volatile energy cost for US households.
So when we talk about electrifying homes, that has to include—perhaps starting from a cost perspective—the box on wheels that is used to move away from the home. Note that the stove does not deserve a special mention here.
Hugh Wynne and Eric Selmon, utility analysts at Sector & Sovereign Research LLC, recently released several reports modeling the investment and resulting costs to consumers involved in the National Renewable Electrification Futures Study Energy Laboratory, published in 2021. The biggest changes are in transport and buildings (electrification of cars, heating and boilers, in other words), which require a massive increase in investment in public services and therefore a marked increase in monthly bills.
According to NREL’s baseline case, SSR calculations imply that average residential electricity bills will increase by 86% in real terms by 2050; under the case of high electrification, they jump 145%. Using 2021 as a reference, that means an additional $104 and $175 per month, real, respectively.
The vast majority of this increase relates to higher kilowatt-hour charges as utilities recoup their increased investment. Average demand doesn’t increase as much as you might think; only 15% in 2050 in the case of high electrification, for example. This is for efficiency.
Thermodynamics dictates that burning fuel to heat water or move a piston causes most of the energy incorporated to be wasted as heat. An electric vehicle is three to four times more efficient than an internal combustion engine (see this), and heat pumps show similar efficiency gains to conventional boilers. Finally, greater electrification with renewables should cause overall demand for primary energy to peak and decline as the proportion of waste is pushed out of the system (see this).
Efficiency means savings. For example, while plugging in your electric vehicle means a higher electric bill, it also means saying goodbye to the gas station. Even assuming gains in fuel efficiency for internal combustion engines, just using today’s average pump price of about $3.40 a gallon implies a monthly household savings of nearly $160 in 2050 by ditching the traditional car a larger increase in monthly electricity bills to begin with compared to the average figures implied by SSR’s analysis. Still, that gas savings goes a long way to make up for it. In the same way, the decrease in the demand for residential gas, due to the electrification of the space and the heating of water (and stoves), also means some savings on this side, although of a very large magnitude minor using SSR figures.(4).
In addition, the decline in gasoline consumption and natural gas consumption by the residential and power generation sectors under the high electrification scenario implies that annual carbon dioxide emissions fall by 1.1 gigatons per year 2050, or 22% of current energy-related emissions in the US. At a nominal value of $50-100 per ton, real, this implies an additional social “savings” of about $30-60 per month for each household. That figure might be a tougher sell to your average voter than induction cooktops, but still.
So going electric doesn’t mean being inundated with monthly electricity bills, once you factor in the trade-offs. But that’s only half the challenge.
In addition to not feeding the most paranoid fantasies of federal stove-door agents suffering from the kitchen door, there is a more reality-based reason why regulations mandating electrification, such as those proposed by the governor of Nova York, Kathy Hochul, focus on new construction rather than renovations. That reason is cost.
Several in-depth studies, such as the one from the Rocky Mountain Institute, conclude that electrification often lowers costs for homeowners over the life of appliances for new homes, but increases them when you factor in the removal of systems old ones to replace them. This is especially true in colder regions of the US, where more expensive ground source heat pumps make more sense, also increasing the cost of building new homes.
In addition, the impact of gas demand creates an economic conundrum. Grid costs are much easier to bear when demand increases, as every dollar spent on maintenance is spread over more and more units of fuel. In the case of natural gas, SSR projects large declines in residential demand over the coming decades under NREL’s scenarios. More importantly, but less obviously, there is also a large and faster collapse in the gas consumption of energy generators as renewable muscles. This is a big problem for the gas business, as well as the customers who still use these pipes and state regulators. setting and justifying what will be much higher prices.
Also worth considering is the acceleration of the investment required in the network. According to SSR’s analysis, spending on generation and transmission to achieve zero-carbon energy by 2050 is equivalent to 0.61% of cumulative US gross domestic product through 2050. That doesn’t sound like much. But it is far higher than the 0.34% spent over the past 30 years and on par with levels seen in the decades after the end of World War II, when the grid was being built at a rapid pace to feed the boom in the post war .
Then it was all about increasing the amount of electricity. Today, we are more concerned about quality, looking for greater efficiency and lower emissions. The point is not that electrification cannot be done. Rather, as with any renewal task, a major obstacle to doing so, and to realizing the public good of mitigating climate change, is the sheer inertia built into the existing infrastructure. We are invested in molecules, financially and behaviorally, as well as emotionally, at least for some, and largely avoid fixing their side effects explicitly. This tends to obscure the savings and benefits, both monetary and environmental, that would accrue from electrification and decarbonisation. Hence the role of mandates and incentives, and the inevitable backlash they invite. More from Bloomberg Opinion:
• ESG Genie Out of the Bottle is an investor disaster: John Authers
• Republicans are splitting the party over clean energy: Carl Pope
• Biden is not coming for your gas stove. States are: Liam Denning
(1) Assessing actual residential-only gasoline consumption is difficult because official data are often segmented by vehicle type rather than by use. This means that the line between commercial and residential gasoline consumption is blurred. The Energy Information Administration estimates gasoline consumption per household in 2021 at 1,071 gallons, which implies 16.25 trillion BTUs, but this uses global gasoline consumption as the numerator. I have chosen to use the Bureau of Transport Statistics figure for the fuel consumption of short wheelbase light vehicles and motorcycles.
(2) These are 10-year averages using monthly data through January 2023 (source: Bureau of Economic Analysis).
(3) This assumes an average fleet efficiency of 30.5 miles per gallon in 2050, based on baseline assumptions from the Energy Information Administration’s latest Annual Energy Outlook. It assumes a constant average of 13,476 miles traveled per year, according to 2021 figures from the Department for Transport. I adjust the resulting consumption per vehicle number by the proportion of domestic petrol consumption implied by the Department for Transport’s light vehicle figures for 2019 as follows. In 2019, US drivers averaged 14,263 miles in vehicles that got 24.9 miles per gallon, which translates to 573 gallons per vehicle that year. Total light vehicle consumption that year involved 731 gallons per household, with a ratio of 1.28. Thus, by 2050, the implied fuel consumption per vehicle of 442 gallons increases to a household figure of 564 gallons.
(4) SSR projects a decline in residential gas demand from about 12 billion cubic feet per day in 2020 to 5.3 billion per day in 2050 under NREL’s high electrification scenario. Using average residential prices in 2021 of $12.18 per thousand cubic feet, the implied annual savings this year is $23.5 billion, or, using the Energy Information Administration’s projection of 153, 3 million households that year, about $13 a month on average. In reality, a significant proportion of gas bills relate to the recovery of infrastructure costs by the utility rather than the gas itself, so the actual savings are difficult to quantify, as a network with declining demand will seek to recoup costs with higher charges per cubic foot.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and reporter for the Financial Times’ Lex column.
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