Commercial from Market Trends

Industrial and commercial sectors lead U.S. growth in primary energy use

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Total primary energy consumption, including fuels used for electricity generation, grows by 0.3 percent per year from 2010 to 2035, to 106.9 quadrillion Btu in 2035 in the AEO2012 Reference case (Figure 72). The largest growth, 3.3 quadrillion Btu from 2010 to 2035, is in the commercial sector, which currently accounts for the smallest share of end-use energy demand. Even as standards for building shells and energy efficiency are being tightened in the commercial sector, the growth rate for commercial energy use, at 0.7 percent per year, is the highest among the end-use sectors, propelled by 1.0 percent average annual growth in commercial floorspace.

The industrial sector, which was more severely affected than the other end-use sectors by the 2008-2009 economic downturn, shows the second-largest increase in total primary energy use, at 3.1 quadrillion Btu from 2010 to 2035. The total increase in industrial energy consumption is 2.1 quadrillion Btu from 2008 to 2035, attributable to increased production of biofuels to meet the Energy Independence and Security Act of 2007 (EISA2007) renewable fuels standard (RFS) as well as increased use of natural gas in some industries, such as food and paper, to generate their own electricity.

Primary energy use in both the residential and transportation sectors grows by 0.2 percent per year, or by just over 1 quadrillion Btu each from 2010 to 2035. In the residential sector, increased efficiency reduces energy use for space heating, lighting, and clothes washers and dryers. In the transportation sector, light-duty vehicle (LDV) energy consumption declines after 2012 to 14.7 quadrillion Btu in 2023 (the lowest point since 1998) before increasing through 2035, when it is still 4 percent below the 2010 level.

For commercial buildings, pace of decline in energy intensity depends on technology

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In the AEO2012 Reference case, average delivered energy use per square foot of commercial floorspace declines by 7.0 percent from 2010 to 2035 (Figure 78). Growth in commercial floorspace (26.9 percent) leads to an increase in delivered energy use (18.1 percent), but efficiency improvements in equipment and building shells reduce energy intensity in commercial buildings. Space heating, space cooling, and lighting contribute most to the decrease in intensity, with space heating accounting for significantly more than cooling and lighting combined. Three alternative cases show the potential impact of energyefficient technologies on energy intensity in commercial buildings.

The 2011 Demand Technology case limits equipment and building shell technologies in later years to the options available in 2011. The High Demand Technology case assumes higher efficiencies for equipment and building shells, lower costs, earlier availability of some advanced equipment, and decisions by commercial customers that place greater importance on future energy savings. The Best Available Technology case assumes more efficient buildings shells for new and existing buildings than in the High Demand Technology case and also requires commercial customers to choose among the most efficient models for each technology when replacing old or purchasing new equipment.

From 2010 to 2035, the intensity of commercial energy use in the 2011 Technology Demand case declines by 5.0 percent, to 101.9 thousand Btu per square foot of commercial floorspace in 2035. In comparison, intensity decreases faster in the High Demand Technology case (16.0 percent) and fastest in the Best Available Demand Technology case (20.0 percent).

Efficiency standards reduce electric energy intensity in commercial buildings

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Electricity, which accounted for 52 percent of total commercial delivered energy use in 2010, increases to 56 percent in 2035 in the AEO2012 Reference case, as commercial floorspace grows at an average annual rate of 1 percent and new electric end uses become more prevalent. Despite such growth, improved efficiency of commercial equipment slows the growth of purchased electricity over the projection period.

Commercial energy intensity in this figure, defined as the ratio of energy consumption in these appliances to floorspace, decreases for most electric end uses from 2010 to 2035 in the Reference case (Figure 79). Electricity intensity decreases by 1.3 percent annually for both cooking and refrigeration, by 0.5 percent annually for lighting, and by 0.7 percent annually for space conditioning (heating, cooling, and ventilation).

End uses such as space heating and cooling, water heating, refrigeration, and lighting are covered by Federal efficiency standards that act to limit growth in energy consumption to less than the growth in commercial floorspace. "Other" electric end uses, some of which are not subject to standards, account for much of the growth in commercial electricity consumption in the Reference case. Electricity consumption for "other" electrical end uses including video displays and medical devices increases by an average of 2.2 percent per year and in 2035 accounts for 38 percent of total commercial electricity consumption. Energy consumption for "other" office equipment including servers and mainframe computers increases by 2.3 percent per year from 2010 to 2035, as demand for high-speed networks and internet connectivity continues to grow.

Technologies for major energy applications lead efficiency gains in commercial sector

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Delivered energy consumption for space heating, ventilation, air conditioning, water heating, ighting, cooking, and refrigeration uses in the commercial sector grows by an average of 0.2 percent per year from 2010 to 2035 in the AEO2012 Reference case, compared with 1.0-percent annual rowth in commercial floorspace. The core end uses, which frequently have been the focus of energy efficiency standards, accounted for just over 60 percent of commercial delivered energy demand in 2010. In 2035, their share falls to 53 percent. Energy consumption for all the remaining end uses grows by 1.3 percent per year, led by office equipment other than computers and other electric end uses.

The percentage gains in efficiency in the Reference case are highest for refrigeration, as a result of provisions in the Energy Policy Act of 2005 and EISA2007. Electric space cooling shows the next-largest percentage improvement, followed by lighting and electric space heating (Figure 80).

The Best Available Demand Technology case demonstrates significant potential for further improvement—especially in electric equipment, led by lighting, water heating, and ventilation. In the Best Available Demand Technology case, the share of total commercial delivered energy use in the core end uses falls to 49 percent in 2035, with significant efficiency gains coming from high-efficiency variable air volume ventilation systems, LED lighting, ground-source heat pumps, high-efficiency rooftop heat pumps, centrifugal chillers, and solar water heaters. Those technologies are relatively costly, however, and thus unlikely to gain wide adoption in commercial applications without improved economics. Additional efficiency improvements could also come from an expansion of standards to include some of the rapidly growing miscellaneous electric applications.

Investment tax credits could increase distributed generation in commercial sector

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ITCs have a major impact on the growth of renewable DG in the commercial sector. Although most ITCs are set to expire at the end of 2016, the tax credit for solar PV installations reverts from 30 percent to 10 percent and continues indefinitely. Commercial PV capacity increases by 2.7 percent annually from 2010 through 2035 in the AEO2012 Reference Case.

Extending the ITCs to all DG technologies through 2035 in the AEO2012 Extended Policies case causes PV capacity to increase at an average annual rate of 5.7 percent (Figure 81). Growth in small-scale wind capacity more than doubles in the Extended Policies case relative to the Reference case, increasing at an average annual rate of 11.4 percent from 2010 to 2035. Wind accounts for 9.2 percent of the 11.1 gigawatts of total commercial DG capacity in 2035 in the Extended Policies case, and PV accounts for 40.6 percent. In the Extended Policies case, renewable energy accounts for 53 percent of all commercial DG capacity, compared with about 37 percent in the Reference case.

Although ITCs affect the rate of adoption of renewable DG by offsetting a portion of capital costs, their potential effects on nonrenewable DG technologies are offset by rising natural gas prices. In the Reference case, microturbine capacity using natural gas grows by an average of 18.1 percent per year from 42 megawatts in 2010 to 2.6 gigawatts in 2035, and the growth rate in the Extended Policies case is only slightly higher, at 18.4 percent. In the Extended Policies case, the microturbine share of total DG capacity in 2035 is 25.6 percent, as compared with 33.4 percent in the Reference case.

Transportation uses lead growth in consumption of petroleum and other liquids

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In 2010, the United States imported 11 percent of its total natural gas supply. In the AEO2012 Reference case, U.S. natural gas production grows faster than consumption, so that early in the next decade exports exceed imports. In 2035, U.S. net natural gas exports are about 1.4 trillion cubic feet (about 4 billion cubic feet per day), half of which is exported overseas as liquefied natural gas (LNG). The other half is transported by pipelines, primarily to Mexico.

U.S. LNG exports supplied from lower 48 natural gas production are assumed to start when LNG export capacity of 1.1 billion cubic feet per day goes into operation in 2016. An additional 1.1 billion cubic feet per day of capacity is expected to come on line in 2019. At full capacity, the facilities could ship 0.8 trillion cubic feet of LNG to overseas consumers per year. Net U.S. LNG exports are somewhat lower than those figures imply, however, because LNG imports to the New England region are projected to continue. In general, future U.S. exports of LNG depend on a number of factors that are difficult to anticipate and thus are highly uncertain.

Net natural gas imports from Canada decline over the next decade in the Reference case and then stabilize at about 1.1 trillion cubic feet per year (Figure 109), when natural gas prices in the U.S. lower 48 States become high enough to motivate Canadian producers to expand their production of shale gas and tight gas. In Mexico, natural gas consumption shows robust growth through 2035, while Mexico's production grows at a slower rate. As a result, increasing volumes of imported natural gas from the United States fill the growing gap between Mexico's production and consumption.

Commercial from Issues in Focus

3. Potential efficiency improvements and their impacts on end-use energy demand

In 2010, the residential and commercial buildings sectors used 20.4 quadrillion Btu of delivered energy, or 28 percent of total U.S. energy consumption. The residential sector accounted for 57 percent of that energy use and the commercial sector 43 percent. In the AEO2012 Reference case, delivered energy for buildings increases by a total of 9 percent, to 22.2 quadrillion Btu in 2035, which is modest relative to the rate of increase in the number of buildings and their occupants. In contrast, the U.S. population increases by 25 percent, commercial floorspace increases by 27 percent, and the number of households increases by 28 percent. Accordingly, energy use in the buildings sector on a per-capita basis declines in the projection. The decline of buildings energy use per capita in past years has been attributable in part to improvements in the efficiencies of appliances and building shells, and efficiency improvements continue to play a key role in projections of buildings energy consumption.

Existing policies, such as Federal appliance standards, along with evolving State policies, and market forces, are drivers of energy efficiency in the United States. A number of recent changes in the broader context of the U.S. energy system that affect energy prices, such as advances in shale gas extraction and the economic slowdown, also have the potential to affect the dynamics of energy efficiency improvement in the U.S. buildings sector. Although these influences are important, technology improvement remains a critical factor for energy use in the buildings sector. The emphasis for this analysis is on fundamental factors, particularly technology factors, that affect energy efficiency, rather than on potential policy or regulatory options.

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Three alternative cases in AEO2012 illustrate the impacts of different assumptions for rates of technology improvement on delivered energy use in the residential and commercial sectors (Figure 20). These cases are in addition to the Extended Policies and No Sunset cases discussed earlier, and they are intended to provide a broader perspective on changes in demand-side technologies. In the High Demand Technology case, high-efficiency technologies are assumed to penetrate end-use markets at lower consumer hurdle rates, with related assumptions in the transportation and industrial sectors. In the Best Available Demand Technology case, new equipment purchases are limited to the most efficient versions of technologies available in the residential and commercial buildings sectors regardless of cost. In the 2011 Demand Technology case, future equipment purchases are limited to the options available in 2011 ("frozen technology"), and 2011 building codes remain unchanged through 2035. Like the High Demand and Best Available Demand Technology cases, the 2011 Demand Technology case includes all current Federal standards.

Without the benefits of technology improvement, buildings energy use in the 2011 Demand Technology case grows to 23.4 quadrillion Btu in 2035, as compared with 22.2 quadrillion Btu in the Reference case. In the High Demand Technology case, energy delivered to the buildings sectors only reaches about 20 quadrillion Btu for any year in the projection period, and in the Buildings Best Available Demand Technology case it declines to 17.9 quadrillion Btu in 2026 before rising slightly to 18.1 quadrillion Btu in 2035.

Background

The residential and commercial sectors together are referred to as the "buildings sector." The cases discussed here are not policy-driven scenarios but rather "what-if" cases used to illustrate the impacts of alternative technology penetration trajectories on buildings sector energy use. In a general sense, this approach can be understood as reflecting uncertainty about technological progress itself, or uncertainty about consumer behavior, in that the market response to a new technology is uncertain. This type of uncertainty is being studied through market research, behavioral economics, and related disciplines that examine how purchasers perceive options, differentiate products, and react to information over time. By varying technology progress across the full range of end uses, the integrated demand cases provide estimates of potential changes in energy savings that, in reality, are likely to be less uniform and more specific to certain end uses, technologies, and consumer groups. Specific assumptions for each of the cases are summarized in Tables 6 and 7.

Results for the residential sector

To emphasize that efficiency is persistent and its effects accumulate over time, energy use is discussed in terms of cumulative reductions (2011-2035) relative to a case with no future advances in technology after 2011. An extensive range of residential equipment is covered by Federal efficiency standards, and the continuing effects of those standards contribute to the cumulative reduction in delivered energy use of 12.3 quadrillion Btu through 2035 in the Reference case relative to the 2011 Demand Technology case. Electricity and natural gas account for more than 85 percent of the difference, each showing a cumulative reduction greater than 5 quadrillion Btu over the period. Energy use for space heating shows the most improvement in the Reference case, affected by improvements in building shells and heating equipment (Figure 21). Televisions and PCs and related equipment use 1.9 quadrillion Btu less energy over the projection period, as devices with energy-saving features continue to penetrate the market, and laptops continue to gain market share over desktop PCs.

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Cumulative savings in residential energy use from 2011 to 2035 total 31.6 quadrillion Btu in the High Demand Technology case and 56.2 quadrillion Btu in the Best Available Demand Technology case in comparison with the 2011 Demand Technology case. Electricity accounts for the largest share of the reductions in the High Demand Technology case (49 percent) and the Best Available Demand Technology case (51 percent). In addition to adopting more optimistic assumptions in the High Demand Technology and Best Available Demand Technology cases for end-use equipment, residential PV and wind technologies are assumed to have greater cost declines than in the Reference case, contributing to reductions in purchased electricity. In 2035, residential PV and wind systems produce 23 billion kilowatthours more electricity in the Best Available Demand Technology case than in the 2011 Demand Technology case.

In the High Demand Technology and Best Available Demand Technology cases, energy use for residential space heating again shows the most improvement relative to the 2011 Demand Technology case. Large kitchen and laundry appliances claim a small share of the reductions, as Federal standards limit increases in energy consumption for those uses even in the 2011 Demand Technology case. Light-emitting diodes (LED) lighting provide the potential for further savings in the High and Best Available Demand Technology cases beyond the reductions realized as a result of the EISA2007 (Public Law 110-140) lighting standards.

Results for the commercial sector

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Like the residential sector, analysis results for the commercial sector are discussed here in terms of cumulative reductions relative to the 2011 Demand Technology case, in order to illustrate the effect of efficiency improvements over the period from 2011 to 2035. Buildings in the commercial sector are less homogeneous than those in the residential sector, in terms of both form and function. Although many commercial products are subject to Federal efficiency standards, FEMP guidelines, and ENERGY STAR specifications, coverage is not as comprehensive as in the residential sector. Still, those initiatives and the ensuing efficiency improvements contribute to a cumulative reduction in commercial delivered energy use of 4.1 quadrillion Btu in the Reference case relative to the 2011 Demand Technology case (Figure 22). Virtually all of the reduction is in purchased electricity. Increased adoption of DG and CHP accounts for 0.4 quadrillion Btu (115 billion kilowatthours) of the cumulative reduction in purchased electricity in the Reference case. Commercial natural gas use is actually slightly higher in the Reference case because of the increased penetration of CHP. Office-related computer equipment sees the most significant end-use energy savings relative to the 2011 Demand Technology case, primarily because laptop computers gain market share from desktop computers.

Commercial heating, ventilation and cooling account for almost 50 percent of the 17.1 quadrillion Btu in cumulative energy savings in the High Demand Technology case relative to the 2011 Demand Technology case. The more optimistic assumptions for enduse equipment in the High Demand Technology case offset the additional energy consumed as a result of greater adoption of CHP, resulting in a cumulative reduction in natural gas consumption of 0.9 quadrillion Btu. The increase in distributed and CHP generation contributes 0.8 quadrillion Btu (231 billion kilowatthours) to the cumulative reduction in purchased electricity use.

Technologies such as LED lighting result in almost as much improvement as space heating and ventilation in the Best Available Demand Technology case relative to the 2011 Demand Technology case. Significant reductions are seen for all enduse services, with a cumulative reduction in energy consumption of 24.6 quadrillion Btu. Even when consumers choose the most efficient type of each end-use technology, the more optimistic assumptions regarding technology learning for advanced CHP technologies result in more natural gas use in the Best Available Demand Technology case relative to the 2011 Demand Technology case.

In comparison to a case that restricts future equipment to the efficiencies available in 2011, the alternative cases show the potential for reductions in energy consumption from the adoption of more energy-efficient technologies. In the Reference case, technology improvement reduces residential energy consumption by 12.3 quadrillion Btu—equivalent to 4.1 percent of total residential energy use—from 2011 to 2035 in comparison with the 2011 Demand Technology case. In the commercial sector, energy consumption is reduced by 4.1 quadrillion Btu—equivalent to 1.7 percent of total commercial energy use—over the same period. With greater technology improvement in the High Demand Technology case, cumulative energy savings from 2011 to 2035 rise by an additional 6.4 percent and 5.5 percent in the residential and commercial sectors, respectively. In the Best Available Demand Technology case, the cumulative reductions in energy consumption grow by an additional 8.2 percent and 3.1 percent in the residential and commercial sectors, respectively. In the Reference case, a cumulative total of 16.4 quadrillion Btu of energy consumption is avoided over the projection period relative to the 2011 Demand Technology case. That reduction is roughly equivalent to 80 percent of the energy that the buildings sectors consumed in 2010. In the Best Available Demand Technology case, cumulative energy consumption is reduced by an additional 64.3 quadrillion Btu from 2011 to 2035.