Residential 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 2011 to 2040, to 107.6 quadrillion Btu in 2040 in the AEO2013 Reference case (Figure 53). The largest growth, 5.1 quadrillion Btu from 2011 to 2040, is in the industrial sector, attributable to increased use of natural gas in some industries (bulk chemicals, for example) as a result of an extended period of relatively low prices coinciding with rising shipments in those industries. The industrial sector was more severely affected than the other end-use sectors by the 2007-2009 economic downturn; the increase in industrial energy consumption from 2008 through 2040 is 3.9 quadrillion Btu.

The second-largest increase in total primary energy use, at 3.1 quadrillion Btu from 2011 to 2040, 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 0.5 percent per year, is the highest among the end-use sectors, propelled by 1.0-percent average annual growth in commercial floorspace.

Primary energy use in the residential sector grows by 0.2 percent per year, or about 1.6 quadrillion Btu from 2011 to 2040, but it does not increase above the 2011 level until 2029. Increased efficiency reduces energy use for space heating, lighting, and clothes washers.

In the transportation sector, light-duty vehicle (LDV) energy consumption declines as a result of the impact of fuel economy standards through 2025. Total transportation sector energy use is essentially flat from 2011 through 2040, increasing by about 140 trillion Btu.

Renewables and natural gas lead rise in primary energy consumption

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The aggregate fossil fuel share of total energy use falls from 82 percent in 2011 to 78 percent in 2040 in the Reference case, while renewable use grows rapidly (Figure 54). The renewable share of total energy use (including biofuels) grows from 9 percent in 2011 to 13 percent in 2040 in response to the federal renewable fuels standard; availability of federal tax credits for renewable electricity generation and capacity during the early years of the projection; and state renewable portfolio standard (RPS) programs.

Natural gas consumption grows by about 0.6 percent per year from 2011 to 2040, led by the increased use of natural gas in electricity generation and, at least through 2020, the industrial sector. Growing production from tight shale keeps natural gas prices below their 2005-2008 levels through 2036. In the AEO2013 Reference case, the amount of liquid fuels made from natural gas (360 trillion Btu) is about three times the amount made from coal.

Increased vehicle fuel economy offsets growth in transportation activity, resulting in a decline in the petroleum and other liquids share of fuel use even as consumption of liquid biofuels increases. Biofuels, including biodiesel blended into diesel, E85, and ethanol blended into motor gasoline (up to 15 percent), account for 6 percent of all petroleum and other liquids consumption by energy content in 2040.

Coal consumption increases at an average rate of 0.1 percent per year from 2011 to 2040, remaining below 2011 levels until 2030. By the end of 2015, a total of 6.1 gigawatts of coal-fired power plant capacity currently under construction comes on line, and another 1.5 gigawatts is added after 2016 in the Reference case, including 0.9 gigawatts with carbon sequestration capability. Additional coal is consumed in the CTL process and to produce heat and power (including electricity generation at CTL plants).

Residential from Issues in Focus

1. No sunset and extended policies cases

Background

The AEO2013 Reference case is best described as a current laws and regulations case because it generally assumes that existing laws and regulations remain unchanged throughout the projection period, unless the legislation establishing them sets a sunset date or specifies how they will change. The Reference case often serves as a starting point for analysis of proposed changes in legislation or regulations. While the definition of the Reference case is relatively straightforward, there may be considerable interest in a variety of alternative cases that reflect updates or extensions of current laws and regulations. Areas of particular interest include:

• Laws or regulations that have a history of being extended beyond their legislated sunset dates. Examples include the various tax credits for renewable fuels and technologies, which have been extended with or without modifications several times since their initial implementation.
• Laws or regulations that call for periodic updating of initial specifications. Examples include appliance efficiency standards issued by the U.S. Department of Energy (DOE) and CAFE and greenhouse gas (GHG) emissions standards for vehicles issued by the National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA).
• Laws or regulations that allow or require the appropriate regulatory agency to issue new or revised regulations under certain conditions. Examples include the numerous provisions of the Clean Air Act that require EPA to issue or revise regulations if it finds that an environmental quality target is not being met.

Two alternative cases are discussed in this section to provide some insight into the sensitivity of results to scenarios in which existing tax credits or other policies do not sunset. No attempt is made to cover the full range of possible uncertainties in these areas, and readers should not view the cases discussed as EIA projections of how laws or regulations might or should be changed. The cases examined here look only at federal laws or regulations and do not examine state laws or regulations.

Analysis cases

The two cases prepared—the No Sunset case and the Extended Policies case—incorporate all the assumptions from the AEO2013 Reference case, except as identified below. Changes from the Reference case assumptions include the following.

No Sunset case

Tax credits for renewable energy sources in the utility, industrial, and buildings sectors, or for energy-efficient equipment in the buildings sector, are assumed to be extended, including the following:

• The PTC of 2.2 cents per kilowatthour and the 30-percent investment tax credit (ITC) available for wind, geothermal, biomass, hydroelectric, and landfill gas resources, assumed in the Reference case to expire at the end of 2012 for wind and 2013 for the other eligible resources, are extended indefinitely. On January 1, 2013, Congress passed a one-year extension of the PTC for wind and modified the qualification rules for all eligible technologies; these changes are not included in the AEO2013 Reference case, which was completed in December 2012, but they are discussed in "Effects of energy provisions in the American Taxpayer Relief Act of 2012".
• For solar power investments, a 30-percent ITC that is scheduled to revert to a 10-percent credit in 2016 is, instead, assumed to be extended indefinitely at 30 percent.
• In the buildings sector, personal tax credits for the purchase of renewable equipment, including photovoltaics (PV), are assumed to be extended indefinitely, as opposed to ending in 2016 as prescribed by current law. The business ITCs for commercial-sector generation technologies and geothermal heat pumps are assumed to be extended indefinitely, as opposed to expiring in 2016; and the business ITC for solar systems is assumed to remain at 30 percent instead of reverting to 10 percent. On January 1, 2013, legislation was enacted to reinstate tax credits for energy-efficient homes and selected residential appliances. The tax credits that had expired on December 31, 2011, are now extended through December 31, 2013. This change is not included in the Reference case.
• In the industrial sector, the 10-percent ITC for combined heat and power (CHP) that ends in 2016 in the AEO2013 Reference case [65] is assumed to be preserved through 2040, the end of the projection period.

Extended Policies case

The Extended Policies case includes additional updates to federal equipment efficiency standards that were not considered in the Reference case or No Sunset case. Residential and commercial end-use technologies eligible for incentives in the No Sunset case are not subject to new standards. Other than those exceptions, the Extended Policies case adopts the same assumptions as the No Sunset case, plus the following:

• Federal equipment efficiency standards are assumed to be updated at periodic intervals, consistent with the provisions in existing law, at levels based on ENERGY STAR specifications or on the Federal Energy Management Program purchasing guidelines for federal agencies, as applicable. Standards are also introduced for products that currently are not subject to federal efficiency standards.
• Updated federal energy codes for residential and commercial buildings increase by 30 percent in 2020 compared to the 2006 International Energy Conservation Code in the residential sector and the American Society of Heating, Refrigerating and Air-Conditioning Engineers Building Energy Code 90.1-2004 in the commercial sector. Two subsequent rounds in 2023 and 2026 each add an assumed 5-percent incremental improvement to building energy codes. The equipment standards and building codes assumed for the Extended Policies case are meant to illustrate the potential effects of those policies on energy consumption for buildings. No cost-benefit analysis or evaluation of impacts on consumer welfare was completed in developing the assumptions. Likewise, no technical feasibility analysis was conducted, although standards were not allowed to exceed the "maximum technologically feasible" levels described in DOE's technical support documents.
• The AEO2013 Reference, No Sunset, and Extended Policies cases include both the attribute-based CAFE standards for light-duty vehicles (LDVs) in model year (MY) 2011 and the joint attribute-based CAFE and vehicle GHG emissions standards for MY 2012 to MY 2025. The Reference and No Sunset cases assume that the CAFE standards are then held constant at MY 2025 levels in subsequent model years, although the fuel economy of new LDVs continues to rise modestly over time. The Extended Policies case modifies the assumption in the Reference and No Sunset cases, assuming continued increases in CAFE standards after MY 2025. CAFE standards for new LDVs are assumed to increase by an annual average rate of 1.4 percent.
• In the industrial sector, the ITC for CHP is extended to cover all properties with CHP, no matter what the system size (instead of being limited to properties with systems smaller than 50 megawatts as in the Reference case [66]), which may include multiple units. Also, the ITC is modified to increase the eligible CHP unit cap to 25 megawatts from 15 megawatts. These extensions are consistent with previously proposed legislation.

Analysis results

The changes made to the Reference case assumptions in the No Sunset and Extended Policies cases generally lead to lower estimates for overall energy consumption, increased use of renewable fuels particularly for electricity generation and reduced energy-related carbon dioxide (CO₂) emissions. Because the Extended Policies case includes most of the assumptions in the No Sunset case but adds others, the effects of the Extended Policies case tend to be greater than those in the No Sunset case—but not in all cases, as discussed below. Although these cases show lower energy prices, because the tax credits and end-use efficiency standards lead to lower energy demand and reduce the costs of renewable technologies, appliance purchase costs are also affected. In addition, the government receives lower tax revenues as consumers and businesses take advantage of the tax credits.

Energy consumption

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Total energy consumption in the No Sunset case is close to the level in the Reference case (Figure 13). Improvements in energy efficiency lead to reduced consumption in this case, but somewhat lower energy prices lead to relatively higher levels of consumption, partially offsetting the impact of improved efficiency. In 2040, total energy consumption in the Extended Policies case is 3.8 percent below the Reference case projection.

Buildings energy consumption

Renewable distributed generation (DG) technologies (PV systems and small wind turbines) provide much of the buildings-related energy savings in the No Sunset case. Extended tax credits in the No Sunset case spur increased adoption of renewable DG, leading to 61 billion kilowatthours of onsite electricity generation from DG systems in 2025, compared with 28 billion kilowatthours in the Reference case. Continued availability of the tax credits results in 137 billion kilowatthours of onsite electricity generation in 2040 in the No Sunset case—more than three times the amount of onsite electricity generated in 2040 in the Reference case. Similar adoption of renewable DG occurs in the Extended Policies case. With the additional efficiency gains from assumed future standards and more stringent building codes, delivered energy consumption for buildings is 3.9 percent (0.8 quadrillion British thermal units [Btu]) lower in 2025 and 8.0 percent (1.7 quadrillion Btu) lower in 2040 in the Extended Policies case than in the Reference case. The reduction in 2040 is more than seven times as large as the 1.1-percent (0.2 quadrillion Btu) reduction in the No Sunset case.

Electricity use shows the largest reduction in the two alternative cases compared to the Reference case. Building electricity consumption is 1.3 percent and 5.8 percent lower, respectively, in the No Sunset and Extended Policies cases in 2025 and 2.1 percent and 8.7 percent lower, respectively, in 2040 than in the Reference case, as onsite generation continues to increase and updated standards affect a greater share of the equipment stock in the Extended Policies case. Space heating and cooling are affected by the assumed standards and building codes, leading to significant savings in energy consumption for heating and cooling in the Extended Policies case. In 2040, delivered energy use for space heating in buildings is 9.6 percent lower, and energy use for space cooling is 20.3 percent lower, in the Extended Policies case than in the Reference case. In addition to improved standards and codes, extended tax credits for PV prompt increased adoption, offsetting some of the costs for purchased electricity for cooling. New standards for televisions and for personal computers and related equipment in the Extended Policies case lead to savings of 28.3 percent and 31.8 percent, respectively, in residential electricity use for this equipment in 2040 relative to the Reference case. Residential and commercial natural gas use declines from 8.1 quadrillion Btu in 2011 to 7.8 quadrillion Btu in 2025 and 7.2 quadrillion Btu in 2040 in the Extended Policies case, representing a 2.2-percent reduction in 2025 and a 8.5-percent reduction in 2040 relative to the Reference case.

Industrial energy consumption

The No Sunset case modifies the Reference case assumptions by extending the existing ITC for industrial CHP through 2040. The Extended Policies case starts from the No Sunset case and expands the credit to include industrial CHP systems of all sizes and raises the maximum credit that can be claimed from 15 megawatts of installed capacity to 25 megawatts. The changes result in 1.6 gigawatts of additional industrial CHP capacity in the No Sunset case compared with the Reference case in 2025 and 3.5 gigawatts of additional capacity in 2040. From 2025 through 2040, more CHP capacity is installed in the No Sunset case than in the Extended Policy case. CHP capacity is 0.3 gigawatts higher in the No Sunset Case than in the Extended Policies Case in 2025 and 1.2 gigawatts higher in 2040. Although the Extended Policies case includes a higher tax benefit for CHP than the No Sunset case, which by itself provides greater incentive to build CHP capacity, electricity prices are lower in the Extended Policies case than in the No Sunset case starting around 2020, and the difference increases over time. Lower electricity prices, all else equal, reduce the economic attractiveness of CHP. Also, the median size of industrial CHP units size is 10 megawatts [67], and many CHP systems are well within the 50-megawatt total system size, which means that relaxing the size constraint is not as strong an incentive for investment as is allowing the current tax credit for new CHP investments to continue after 2016.

Natural gas consumption averages 9.7 quadrillion Btu per year in the industrial sector from 2011 to 2040 in the No Sunset case—about 0.1 quadrillion Btu, or 0.9 percent, above the level in the Reference case. Over the course of the projection, the difference in natural gas consumption between the No Sunset case and the Reference case is small but increases steadily. In 2025, natural gas consumption in the No Sunset case is approximately 0.1 quadrillion Btu higher than in the Reference Case, and in 2040 it is 0.2 quadrillion Btu higher. Natural gas consumption in the Extended Policies case is virtually the same as in the No Sunset case through 2030. After 2030, refinery use of natural gas stabilizes in the Extended Policies case as continued increases in CAFE standards reduce demand for petroleum products.

Transportation energy consumption

The Extended Policies case differs from the Reference and No Sunset cases in assuming that the CAFE standards recently finalized by EPA and NHTSA for MY 2017 through 2025 (which call for a 4.1-percent annual average increase in fuel economy for new LDVs) are extended through 2040 with an assumed average annual increase of 1.4 percent. Sales of vehicles that do not rely solely on a gasoline internal combustion engines for both motive and accessory power (including those that use diesel, alternative fuels, or hybrid electric systems) play a substantial role in meeting the higher fuel economy standards after 2025, growing to almost 72 percent of new LDV sales in 2040, compared with about 49 percent in the Reference case.

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LDV energy consumption declines in the Reference case from 16.1 quadrillion Btu (8.7 million barrels per day) in 2011 to 14.0 quadrillion Btu (7.7 million barrels per day) in 2025 as a result of the increase in CAFE standards. Extension of the increases in CAFE standards in the Extended Policies case further reduces LDV energy consumption to 11.9 quadrillion Btu (6.5 million barrels per day) in 2040, or about 8 percent lower than in the Reference case. Petroleum and other liquid fuels consumption in the transportation sector is virtually identical through 2025 in the Reference and Extended Policies cases but declines in the Extended Policies case from 13.3 million barrels per day in 2025 to 12.3 million barrels per day in 2040, as compared with 13.0 million barrels per day in 2040 in the Reference case (Figure 14).

Renewable electricity generation

The extension of tax credits for renewables through 2040 would, over the long run, lead to more rapid growth in renewable generation than in the Reference case. When the renewable tax credits are extended without extending energy efficiency standards, as assumed in the No Sunset case, there is a significant increase in renewable generation in 2040 compared to the Reference case (Figure 15). Extending both renewable tax credits and energy efficiency standards in the Extended Policies case results in more modest growth in renewable generation, because renewable generation is a significant source of new generation to meet load growth, and enhanced energy efficiency standards tend to reduce overall electricity consumption and the need for new generation resources.

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The AEO2013 Reference case does not reflect the provisions of the American Taxpayer Relief Act of 2012 (P.L. 112-240) passed on January 1, 2013 [68], which extends the PTCs for renewable generation beyond what is included in the AEO2013 Reference case. While this legislation was completed too late for inclusion in the Reference case, EIA did complete an alternative case that examined key energy-related provisions of that legislation, the most important of which is the extension of the PTC for renewable generation. A brief summary of those results is presented in the box, "Effects of energy provisions in the American Taxpayer Relief Act of 2012."

Effects of energy provisions in the American Taxpayer Relief Act of 2012

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (ATRA). The law, among other things, extended several provisions for tax credits to the energy sector. Although the law was passed too late to be incorporated in the Annual Energy Outlook 2013 (AEO2013) Reference case, a special case was prepared to analyze some of its key provisions, including the extension of tax credits for utility-scale renewables, residential energy efficiency improvements, and biofuels [69]. The analysis found that the most significant impact on energy markets came from extending the production tax credits (PTCs) for utility-scale wind, and from changing the PTC qualification criteria from being in service on December 31, 2013, to being under construction by December 31, 2013, for all eligible utility-scale technologies. Although there is some uncertainty about what criteria will be used to define "under construction," this analysis assumes that the effective length of the extension is equal to the typical project development time for a qualifying project. For wind, the effective extension is 3 years.

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Compared with the AEO2013 Reference case, ATRA increases renewable generation, primarily from wind (Figure 16). Renewable generation in 2040 is about 2 percent higher in the ATRA case than in the Reference case, with the greatest growth occurring in the near term. In 2016, renewable generation in the ATRA case exceeds that in the Reference case by nearly 9 percent. Almost all the increase comes from wind generation, which in 2016 is about 34 percent higher in the ATRA case than in the Reference case. In 2040, however, wind generation is only 17 percent higher than projected in the Reference case. These results indicate that, while the short-term extension does result in additional wind generation capacity, some builds that otherwise would occur later in the projection period are moved up in time to take advantage of the extended tax credit. The increase in wind generation partially displaces other forms of generation in the Reference case, both renewable and nonrenewable—particularly solar, biomass, coal, and natural gas.

ATRA does not have significant effects on electricity or delivered natural gas prices and generally does not result in a difference of more than 1 percent either above or below Reference case prices. In the longer term (beyond 2020), electricity and natural gas prices generally both are slightly lower in the ATRA case, as increased wind capacity reduces variable fuel costs in the power sector and reduces the demand for natural gas.

Other ATRA provisions analyzed had minimal impact on all energy measures, primarily limited to short-term reductions in renewable fuel prices and a one-year window for residential customers to get tax credits for certain efficiency expenditures. Provisions of the act not addressed in this analysis are likely to have only modest impacts because of their limited scale, scope, and timing.

In the No Sunset and Extended Policies cases, renewable generation more than doubles from 2011 to 2040, as compared with a 64-percent increase in the Reference case. In 2040, the share of total electricity generation accounted for by renewables is between 22 and 23 percent in both the No Sunset and Extended Policies cases, as compared with 16 percent in the Reference case.

Construction of wind-generation units slows considerably in the Reference case from recent construction rates, following the assumed expiration of the tax credit for wind power in 2012. The combination of slow growth in electricity demand, little impact from state-level renewable generation requirements, and low prices for competing fuels like natural gas keeps growth relatively low until around 2025, when load growth finally catches up with installed capacity, and natural gas prices increase to a level at which wind is a cost-competitive option in some regions. Extending the PTC for wind spurs a brief surge in near-term development by 2014, but the factors that limit development through 2025 in the Reference case still largely apply, and growth from 2015 to about 2025 is slow, in spite of the availability of tax credits during the 10-year period. When the market picks up again after 2025, availability of the tax credits spurs additional wind development over Reference case levels. Wind generation in the No Sunset case is about 27 percent higher than in the Reference case in 2025 and 86 percent higher in 2040.

In the near term, the continuation of tax credits for solar generation results in a continuation of recent growth trends for this resource. The solar tax credits are assumed to expire in 2016 in the Reference case, after which the growth of solar generation slows significantly. Eventually, economic conditions become favorable for utility-scale solar without the federal tax credits, and the growth rate picks up substantially after 2025. With the extension of the ITC, growth continues throughout the projection period. Solar generation in the No Sunset case in 2040 is more than 30 times the 2011 level and more than twice the level in 2040 in the Reference case.

The impacts of the tax credit extensions on geothermal and biomass generation are mixed. Although the tax credits do apply to both geothermal and biomass resources, the structure of the tax credits, along with other market dynamics, makes wind and solar projects relatively more attractive. Over most of the projection period, geothermal and biomass generation are lower with the tax credits available than in the Reference case. In 2040, generation from both resources in the No Sunset and Extended Policies cases is less than 10 percent below the Reference case levels. However, generation growth lags significantly through 2020 with the tax credit extensions, and generation in 2020 from both resources is about 20 percent lower in the No Sunset and Extended Policy cases than in the Reference case.

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After 2025, renewable generation in the No Sunset and Extended Policies cases starts to increase more rapidly than in the Reference case. As a result, generation from nuclear and fossil fuels is below Reference case levels. Natural gas represents the largest source of displaced generation. In 2040, electricity generation from natural gas is 13 percent lower in the No Sunset case and 16 percent lower in the Extended Policies case than in the Reference case (Figure 17).

Energy-related CO₂ emissions

In the No Sunset and Extended Policies cases, lower overall fossil energy use leads to lower levels of energy-related CO₂ emissions than in the Reference case. In the Extended Policies case, the emissions reduction is larger than in the No Sunset case. From 2011 to 2040, energy-related CO₂ emissions are reduced by a cumulative total of 4.6 billion metric tons (a 2.8-percent reduction over the period) in the Extended Policies case relative to the Reference case projection, as compared with 1.7 billion metric tons (a 1.0-percent reduction over the period) in the No Sunset case (Figure 18). The increase in fuel economy standards assumed for new LDVs in the Extended Policies case is responsible for 11.4 percent of the total cumulative reduction in CO₂ emissions from 2011 to 2040 in comparison with the Reference case. The balance of the reduction in CO₂ emissions is a result of greater improvement in appliance efficiencies and increased penetration of renewable electricity generation.

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Most of the emissions reductions in the No Sunset case result from increases in renewable electricity generation. Consistent with current EIA conventions and EPA practice, emissions associated with the combustion of biomass for electricity generation are not counted, because they are assumed to be balanced by carbon absorption when the plant feedstock is grown. Relatively small incremental reductions in emissions are attributable to renewables in the Extended Policies case, mainly because electricity demand is lower than in the Reference case, reducing the consumption of all fuels used for generation, including biomass.

In both the No Sunset and Extended Policies cases, water heating, space cooling, and space heating together account for most of the emissions reductions from Reference case levels in the buildings sector. In the industrial sector, the Extended Policies case projects reduced emissions as a result of decreases in electricity purchases and petroleum use.

Energy prices and tax credit payments

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With lower levels of fossil energy use and more consumption of renewable fuels stimulated by tax credits in the No Sunset and Extended Policies cases, energy prices are lower than in the Reference case. In 2040, average delivered natural gas prices (2011 dollars) are $0.29 per million Btu (2.7 percent) and $0.59 per million Btu (5.4 percent) lower in the No Sunset and Extended Policies cases, respectively, than in the Reference case (Figure 19), and electricity prices are 3.9 percent and 6.3 percent lower than in the Reference case (Figure 20).

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The reductions in energy consumption and CO₂ emissions in the Extended Policies case are accompanied by higher equipment costs for consumers and revenue reductions for the U.S. government. From 2013 to 2040, residential and commercial consumers spend, on average, an additional $20 billion per year (2011 dollars) for newly purchased end-use equipment, DG systems, and residential building shell improvements in the Extended Policies case as compared with the Reference case. On the other hand, residential and commercial customers save an average of $30 billion per year on energy purchases.

Tax credits paid to consumers in the buildings sector (or, from the government's perspective, reduced revenue) in the No Sunset case average $4 billion (2011 dollars) more per year than in the Reference case, which assumes that existing tax credits expire as currently scheduled, mostly by 2016.

The largest response to federal tax incentives for new renewable generation is seen in the No Sunset case, with extension of the PTC and the 30-percent ITC resulting in annual average reductions in government tax revenues of approximately $2.3 billion from 2011 to 2040, as compared with $650 million per year in the Reference case.

Residential energy intensity continues to decline across a range of technology assumptions

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In the AEO2013 Reference case, the energy intensity of residential demand, defined as annual energy use per household, declines from 97.2 million Btu in 2011 to 75.5 million Btu in 2040 (Figure 55). The projected 22-percent decrease in intensity occurs along with a 32-percent increase in the number of homes. Residential energy intensity is affected by various factors—for example, population shifts to warmer and drier climates, improvements in the efficiency of building construction and equipment stock, and the attitudes and behavior of residents toward energy savings.

Three alternative cases show the effects of different technology assumptions on residential energy intensity. The 2012 Demand Technology case assumes no future improvement in efficiency for equipment or building shells beyond what is available in 2012. The High Demand Technology case assumes higher efficiency, earlier availability, lower cost, and more frequent energy-efficient purchases for some equipment. The Best Available Demand Technology case limits customer purchases of new and replacement equipment to the most efficient models available at the time of purchase—regardless of cost. This case also assumes that new homes are constructed to the most energy-efficient specifications.

From 2011 to 2040, household energy intensity declines by 31 percent in the High Demand Technology case and by 42 percent in the Best Available Demand Technology case. In the 2012 Demand Technology case, energy intensity is slightly higher than in the Reference case but still declines by 17 percent from 2011 to 2040 as a result of the replacement of pre-2012 appliance stocks with 2012 vintage equipment.

Electricity use per household declines from 2011 to 2040 in the Reference case

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Average electricity demand per household declines by 6 percent in the Reference case, from 12.3 megawatthours in 2011 to 11.5 megawatthours in 2040. As the number of households grows, however, total delivered electricity consumption in the residential sector increases by about 24 percent. Over the same period, residential use of natural gas falls by 12 percent, and use of petroleum and other liquids falls by 25 percent. Total energy demand for most electric end uses increases, even as it declines on a per-household basis. In 2040, space cooling and "other uses" consume 42 percent and 52 percent more electricity, respectively, than in 2011 and remain the largest residential uses of electricity. Electricity use for personal computers (PCs) and related equipment and for clothes washers declines.

The largest reduction in residential electricity use is for lighting (Figure 56). The Energy Independence and Security Act of 2007 (EISA2007) phases in standards that require a reduction of about 30 percent in energy use for general-service lamps between 2012 and 2014, with specific dates that vary by light level. On January 1, 2013, the requirements went into effect for 75-watt incandescent bulbs; the requirements for 100-watt incandescent bulbs went into effect a year earlier. The EISA2007 standards result in the replacement of incandescent bulbs with more efficient compact fluorescent lighting and light-emitting diode (LED) lamps.

Among electric end-use services in the residential sector, lighting demand declines at the fastest rate (1.8 percent per year) and "other uses" rise at the fastest rate (1.4 percent per year). The growth in other uses stems from the introduction of new electrical devices in households, with little coverage by efficiency standards. Electricity use for water heating also increases, but at a slower rate (0.7 percent per year) than the growth in number of households (1.0 percent per year)

Efficiency can offset increases in residential service demand

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The number of households increases by 32 percent, and total residential square footage increases by 41 percent from 2011 to 2040 in the AEO2013 Reference case. Without efficiency improvements, energy demand for uses such as heating, cooling, and lighting would increase at similar rates; however, for many end uses, delivered energy consumption increases more slowly or, in some instances, declines in the Reference case. Three alternative cases show how efficiency improvements could affect energy consumption levels (Figure 57). The High Demand Technology and Best Available Demand Technology cases assume different levels of efficiency improvement without anticipating new appliance standards. The Extended Policies case assumes the enactment of new rounds of standards, generally based on improvements seen in current ENERGY STAR equipment.

Energy consumption declines in the Reference case for two major end uses, space heating and water heating. Energy use for space cooling in the Reference case grows by 42 percent from 2011 to 2040—faster than the number of households, reflecting both population shifts and changes in the number of degree days. In the Best Available Demand Technology case, which includes greater adoption of efficient space cooling equipment, energy use for space cooling declines over the same period.

In all four cases, substantial declines in energy use for lighting reflect EISA2007 efficiency standards. For the category of miscellaneous loads—a wide range of small appliances and electronics, most of which are not currently subject to efficiency standards—delivered energy use increases at the same rate as the number of households in the Extended Policies case (32 percent from 2011 to 2040) and more rapidly than the number of households in the Reference, High Demand Technology, and Best Available Demand Technology cases because of more limited efficiency improvement.

Planned expiration of tax credits affects renewable energy use in the residential sector

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Consistent with current law, existing investment tax credits (ITCs) for residential households installing renewable energy technologies expire at the end of 2016 in the AEO2013 Reference case. The credits can offset 30 percent of installed costs for a variety of technologies, including solar photovoltaic (PV) and wind generators, ground-source heat pumps, and solar thermal water heaters. In the Reference case, expiration of the ITCs drastically slows adoption of renewable technologies. In the AEO2013 No Sunset case, the ITCs are extended through 2040, and the adoption of renewable technologies continues to rise (Figure 58).

In the Reference case, combined PV and wind capacity in the residential sector grows from 1.1 gigawatts in 2011 to 9.5 gigawatts in 2016. After 2016, expiration of the ITCs results in slower growth, with an additional 4.1 gigawatts added from 2017 through 2040. In the No Sunset case, more than 58 gigawatts of residential PV and wind capacity is added over the same period. In all cases, the majority of the added capacity is solar PV rather than wind.

Expiration of the ITCs also affects the penetration of renewable space-conditioning and water-heating equipment. With a 30-percent tax credit available, the number of ground-source heat pumps and solar water heaters grows from a combined 1.3 million units in 2011 to 2.4 million units in 2016; but after 2016 only 1.4 million additional units are added through 2040 in the Reference case. Even in the more optimistic No Sunset case, however, the two renewable technologies are adopted in only a small percentage of households—fewer than 6 percent—by 2040. In the No Sunset case, with the ITC extended, 6.4 million additional units are installed after 2016.

Residential from Comparison with other projections

4. Electricity

Table 11 compares summary results from the AEO2013 Reference case with projections from EVA, IHSGI, INFORUM, ICF, and the National Renewable Energy Laboratory (NREL). In 2025, total electricity sales range from a low of 4,095 billion kilowatthours (INFORUM) to a high of 4,712 billion kilowatthours (IHSGI) [145]. The AEO2013 Reference case projects 4,140 billion kilowatthours of total electricity sales in 2025, EVA projects 4,311 billion kilowatthours in 2025, and NREL projects 4,487 billion kilowatthours in 2026. In comparison with the other projections, IHSGI shows higher sales across all sectors in 2025, with the exception of the commercial sector (1,709 billion kilowatthours), where the EVA projection of 1,824 billion kilowatthours is 115 billion kilowatthours higher. The higher total in the commercial sector counterbalances EVA's lower projection of 736 billion kilowatthours for the industrial sector, compared with 1,186 billion kilowatthours in the AEO2013 Reference case, 1,246 billion kilowatthours in the IHSGI projection, and 1,033 billion kilowatthours in the INFORUM projection.

Total electricity sales in 2035 in the IHSGI projection (5,316 billion kilowatthours) are higher than in the others: 4,406 billion kilowatthours in the INFORUM projection, 4,421 billion kilowatthours in the AEO2013 Reference case, 4,824 billion kilowatthours (in 2036) in the NREL projection, and 4,923 billion kilowatthours in the EVA projection. EVA projects the highest level of electricity sales in both the residential and commercial sectors in 2035 but a lower level of industrial sales in comparison with the other projections. Electricity sales in the industrial sector in the IHSGI projection are 1,332 billion kilowatthours in 2035, as compared with 1,142 billion kilowatthours in the AEO2013 Reference case, 978 billion kilowatthours in the INFORUM projection, and only 515 billion kilowatthours in the EVA projection. Total electricity sales in 2040 are again led by the IHSGI projection, with 5,602 billion kilowatthours, followed by 5,238 billion kilowatthours in the EVA projection, 4,608 billion kilowatthours in the AEO2013 Reference case, and 4,940 billion kilowatthours in the NREL projection.

IHSGI, INFORUM, and the AEO2013 Reference case provide projections for average electricity prices by sector for 2025 and 2035. NREL provides a U.S. average electricity price projection for 2026 and 2036, but not by sector. IHSGI, NREL, and the AEO2013 Reference case provide projections for average electricity prices in 2040. Average electricity prices in the AEO2013 Reference case are 9.5 cents per kilowatthour in 2025, 10.1 cents per kilowatthour in 2035, and 10.8 cents per kilowatthour in 2040. Average electricity prices in the INFORUM projection are 10.0 cents per kilowatthour in 2025 and 10.5 cents per kilowatthour in 2035 [146]. IHSGI projects considerably higher average electricity prices than either the AEO2013 Reference case or INFORUM, at 11.2 cents per kilowatthour in 2025, 11.9 cents per kilowatthour in 2035, and 12.2 cents per kilowatthour in 2040. NREL projects overall average electricity prices of 10.4 cents per kilowatthour in 2026, 11.7 cents per kilowatthour in 2036, and 12.0 cents per kilowatthour in 2040 (the NREL prices were provided in 2009 dollars).

In all the projections, average electricity prices by sector follow patterns similar to changes in the weighted average electricity price across all sectors (including transportation services). The lowest prices by sector in 2025 are in the AEO2013 Reference case (11.6 cents per kilowatthour for the residential sector, 9.7 cents per kilowatthour for the commercial sector, and 6.5 cents per kilowatthour for the industrial sector). The highest average electricity prices by sector in 2025 are in the IHSGI projection (13.3 cents per kilowatthour for the residential sector, 11.6 cents per kilowatthour for the commercial sector, and 7.6 cents per kilowatthour for the industrial sector). The AEO2013 Reference case, IHSGI, and NREL reflect similar price patterns for 2035 (or 2036 for NREL) and 2040.

Total U.S. electricity generation plus imports in 2025 range from a low of 4,296 billion kilowatthours in the INFORUM projection to a high of 5,207 billion kilowatthours in the IHSGI projection. Within that range, the AEO2013 Reference case projects total generation of 4,612 billion kilowatthours. Coal continues to represent the largest share of generation in 2025 in the AEO2013 Reference case, which reports 1,727 billion kilowatthours from coal versus 1,252 billion kilowatthours from natural gas. By comparison, the natural gas share of total generation in the IHSGI projection in 2025 surpasses generation from coal by 126 billion kilowatthours, with 1,732 billion kilowatthours of generation from natural gas and 1,605 billion kilowatthours from coal. IHSGI projects 1,646 billion kilowatthours of electricity generation from both coal and natural gas in 2023, with the natural gas total exceeding that for coal in 2024 and beyond as a result of the assumed implementation of a carbon tax in the IHSGI projection. Conversely, coal continues to represent the largest share of generation in the AEO2013 Reference case in 2035—1,807 billion kilowatthours as compared with 1,519 billion kilowatthours from natural gas. The AEO2013 Reference case is based on current regulations and policies and does not assume a carbon tax. In 2035, the natural gas share of total generation in the IHSGI projection exceeds generation from coal by 808 billion kilowatthours. In the AEO2013 Reference case, coal continues to represent the largest share of generation in 2040 at 1,829 billion kilowatthours, compared with 1,582 billion kilowatthours from natural gas. In comparison, the natural gas share of total generation in 2040 in the IHSGI projection widens its lead over coal by 1,088 billion kilowatthours. In the EVA projection, coal is outpaced by natural gas as a share of total generation in 2040, with 2,330 billion kilowatthours from natural gas and 1,740 billion kilowatthours from coal [147].

Projections for electricity generation from U.S. nuclear power plants in 2025 range from a low of 794 billion kilowatthours (NREL, in 2026) to a high of 923 billion kilowatthours in the IHSGI projection. NREL projects a steady decline in nuclear generation, from 794 billion kilowatthours in 2025 to 510 billion kilowatthours in 2036 and 442 billion kilowatthours in 2040, due to significant plant retirements. For 2035, the AEO2013 Reference case projects a drop in nuclear generation from the 2025 level, to 875 billion kilowatthours, as a result of capacity retirements. In contrast, nuclear generation increases to 953 billion kilowatthours in 2035 in the IHSGI projection. The AEO2013 Reference case shows nuclear generation rebounding to 903 billion kilowatthours in 2040, as compared with 991 billion kilowatthours in the IHSGI projection.

Total generating capacity by fuel in 2025 (including combined heat and power [CHP]) is fairly similar across the projections, ranging from a low of 1,098 gigawatts in the AEO2013 Reference case to a high of 1,237 gigawatts in the IHSGI projection. IHSGI projects slightly more growth in total generating capacity due to what appears to be a much higher demand projection. Natural gas- and oil-fired capacity combined is projected to total 555 gigawatts in 2025 in the IHSGI projection, compared with 500 gigawatts in the AEO2013 Reference case and a maximum of 568 gigawatts in the EVA projection. In all the projections, the hydroelectric/other category includes generation from both hydroelectric and nonhydroelectric renewable resources. In all the projections, hydroelectric capacity remains essentially unchanged, with almost all growth attributable to nonhydroelectric renewable resources. Hydroelectric/other capacity is the highest in 2025 in the IHSGI outlook at 289 gigawatts, compared with 257 gigawatts in the NREL projection (for 2026), 234 gigawatts in the ICF projection, 210 gigawatts in the EVA projection, and 208 gigawatts in the AEO2013 Reference case.

Both the IHSGI and NREL projections reflect lower levels of coal-fired generating capacity in 2040, with 251 gigawatts projected by IHSGI and 224 gigawatts by NREL. In comparison, natural gas- and oil-fired capacity (again dominated by natural gas-fired generating capacity) and hydroelectric/other capacity (dominated by nonhydroeletric renewable capacity) are projected to increase from 2025 levels. IHSGI projects 722 gigawatts of natural gas- and oil-fired capacity and 396 gigawatts of hydroelectric/other capacity in 2040. NREL projects 691 gigawatts of natural gas- and oil-fired capacity and 322 gigawatts of hydroelectric/other capacity in 2040. The AEO2013 Reference case projects 632 gigawatts of natural gas- and oil-fired capacity and 270 gigawatts of hydroelectric/other capacity in 2040.

Cumulative capacity retirements from 2011 through 2025 range from 151 gigawatts in the EVA projection to 82 gigawatts in the AEO2013 Reference case. The majority of the retirements in the IHSGI, ICF, and AEO2013 Reference case projections from 2011 to 2025 are attributed to coal-fired capacity. In the EVA and ICF outlooks, 73 gigawatts of coal-fired capacity is retired from 2011 to 2025. Over the same period, 46 gigawatts of coal-fired capacity is retired in the IHSGI outlook and 49 gigawatts in the AEO2013 Reference case. The NREL projection assumes 33 gigawatts of coal-fired capacity retirements from 2011 to 2026. EVA projects 73 gigawatts of oil- and natural gas-fired capacity retirements between 2011 and 2025, as compared with the ICF, AEO2013 Reference case, and IHSGI projections, which range between 29 gigawatts and 36 gigawatts over the same period. NREL projects 69 gigawatts of oil- and natural gas-fired retirements through 2026. With the exception of EVA and ICF, all the capacity retirements greater than 1 gigawatt between 2011 and 2025 in the outlooks are attributed to coal, oil, and natural gas capacity. EVA and ICF both project 3 gigawatts of nuclear retirements by 2025, while EVA projects 2 gigawatts of hydroelectric/other capacity retirements for the same period.

Cumulative capacity retirements through 2035 range from a high of 161 gigawatts in the EVA projection to a low of 100 gigawatts in the AEO2013 Reference case. Coal-fired capacity represents a large portion of the cumulative retirements from 2011 to 2035, with ICF projecting 82 gigawatts, EVA 77 gigawatts, IHSGI 68 gigawatts, and the AEO2013 Reference case 49 gigawatts. The AEO2013 Reference case projects no retirements of coal-fired capacity from 2025 to 2035. Over the same period, EVA projects only 4 gigawatts, ICF 9 gigawatts, and IHSGI 22 gigawatts. Cumulative retirements of oil- and natural gas-fired capacity from 2011 to 2035 total 44 gigawatts in the AEO2013 Reference case and 74 gigawatts in the EVA projection. NREL projects cumulative totals of 70 gigawatts and 138 gigawatts of retirements for coal-fired capacity and for oil- and natural gas-fired capacity, respectively, from 2011 to 2036. EVA and the AEO2013 Reference case project cumulative nuclear capacity retirements of 9 gigawatts and 6 gigawatts, respectively, from 2011 to 2035, and IHSGI projects 21 gigawatts of cumulative nuclear retirements over the same period. NREL projects 35 gigawatts of cumulative nuclear retirements from 2011 to 2036.

5. Natural gas

Projections for natural gas consumption, production, imports, and prices differ significantly among the outlooks compared in Table 12. The variations result, in large part, from differences in underlying assumptions. For example, the AEO2013 Reference case assumes that current laws and regulations are unchanged through the projection period, whereas some of the other projections include assumptions about anticipated policy developments over the next 25 years. In particular, the AEO2013 Reference case does not incorporate any future changes in policy directed at carbon emissions or other environmental issues, whereas ExxonMobil and some of the other outlooks include explicit assumptions about policies aimed at reducing carbon emissions.

IHSGI and ICF project large increases in natural gas production and consumption over the projection period. IHSGI projects that, as production increases, prices will remain low and U.S. consumers, particularly in the electric power sector, will continue to benefit from an abundance of relatively inexpensive natural gas. In contrast, ICF projects that prices will rise at a more rapid rate than in the IHSGI projection. EVA projects growth in natural gas production, but at lower rates than IHSGI and ICF. Both EVA and ExxonMobil also project strong growth in natural gas consumption in the electric power sector through 2035. EVA differs from the others, however, by projecting strong growth in natural gas consumption despite a rise in natural gas prices to $8.00 per million Btu in 2035. Timing of the growth in consumption is somewhat different between the ExxonMobil projection and the other outlooks. ExxonMobil expects consumption to increase only through 2025, after which it remains relatively flat. The AEO2013 Reference case projects a smaller increase in natural gas consumption for electric power generation than in the other outlooks, with additional natural gas production allowing for a sharp increase in net exports, particularly as liquefied natural gas (LNG). The INFORUM projection shows a smaller rise in production and consumption of natural gas than in any of the other projections.

Production

All the outlooks shown in Table 12 project increases in natural gas production from the 2011 production level of 23.0 trillion cubic feet. IHSGI projects the largest increase, to 36.1 trillion cubic feet in 2035—13.1 trillion cubic feet or 57 percent more than the 2011 levels—with most of the increase coming in the near term (9.3 trillion cubic feet from 2011 to 2025). An additional 1.5 trillion cubic feet of natural gas production is added from 2035 to 2040. In the ICF projection, natural gas production grows by 12.5 trillion cubic feet over the period from 2011, to 35.5 trillion cubic feet in 2035. More than one-half of the increase (6.5 trillion cubic feet) occurs before 2020. INFORUM projects the smallest increase in natural gas production, at only 4.9 trillion cubic feet from 2011 to the 2035 total of 27.9 trillion cubic feet.

The AEO2013 Reference case and EVA project more modest growth in natural gas production. In the AEO2013 Reference case and EVA projections, natural gas production grows to 31.4 trillion cubic feet in 2035, an increase of 8.4 trillion cubic feet from 2011 levels. The AEO2013 Reference case and EVA projections show slower growth in natural gas production from 2011 to 2025, at 5.6 trillion cubic feet and 6.9 trillion cubic feet, respectively. Although the AEO2013 Reference case shows the least aggressive near-term growth in natural gas production, it shows the strongest growth from 2025 to 2035 among the projections, with another increase of 1.8 trillion cubic feet from 2035 to 2040.

Net imports/exports

Differences among the projections for natural gas production generally coincide with differences in total natural gas consumption or net imports/exports. EVA projects positive growth in net imports throughout the projection period, driven by strong growth in natural gas consumption. Although the EVA projection shows significant growth in pipeline imports, it shows no growth in net LNG exports. In contrast, the IHSGI, ICF, and AEO2013 Reference case projections show net exports of natural gas starting on or before 2020. The AEO2013 Reference case projects the largest increase in net exports of natural gas, with net pipeline exports increasing alongside steady growth in net LNG exports. In the ICF projection, the United States becomes a net exporter of natural gas by 2020 but remains a net importer of pipeline through 2035. Combined net exports of natural gas grow to 0.7 trillion cubic feet in 2035 in the ICF projection, with all the growth accounted for by LNG exports, which increase by 1.5 trillion cubic feet from 2011 to 2035. IHSGI projects a U.S. shift from net importer to net exporter of natural gas after 2017, with net exports declining after 2024.

Consumption

All the projections show total natural gas consumption growing throughout the projection periods, and most of them expect the largest increases in the electric power sector. IHSGI projects the greatest growth in natural gas consumption for electric power generation, driven by relatively low natural gas prices, followed by ExxonMobil and EVA, with somewhat higher projections for natural gas prices. The ICF projection shows less growth in natural gas consumption for electric power generation, despite lower natural gas prices, than in the EVA projection. In the AEO2013 Reference case and INFORUM projections, natural gas consumption for electric power generation is somewhat less than in the other outlooks. Some of that variation may be the result of differences in assumptions about potential fees on carbon emissions. For example, the ExxonMobil outlook assumes a tax on carbon emissions, whereas the AEO2013 Reference case does not.

Projections for natural gas consumption in the residential and commercial sectors are similar in the outlooks, with expected levels of natural gas use remaining relatively stable over time. The AEO2013 Reference case projects the lowest level of residential and commercial natural gas consumption, largely as a result of increases in equipment efficiencies, with projected consumption in those sectors falling by 0.1 trillion cubic feet from 2011 to 2040, to a level slightly below those projected by IHSGI and ICF. ExxonMobil projects a significant one-time decrease of 1.0 trillion cubic feet from 2020 to 2025.

The largest difference among the outlooks for natural gas consumption is in the industrial sector, where definitional differences can make accurate comparisons difficult. ExxonMobil and the AEO2013 Reference case both project increases in natural gas consumption in the industrial sector from 2011 to 2040 that are greater than 1.0 trillion cubic feet, with most of the growth in the AEO2013 Reference case occurring from 2015 to 2020. ICF projects the largest increase in industrial natural gas consumption, at 2.2 trillion cubic feet from 2011 to 2035, followed by EVA's projection of 1.8 trillion cubic feet over the same period. Although ExxonMobil projects a significant one-time decrease in industrial natural gas consumption—1.0 trillion cubic feet from 2025 to 2030—its projected level of industrial consumption in 2025, at 9.0 trillion cubic feet, is higher than in any of the other projections. Despite ExxonMobil's projected decrease in industrial natural gas consumption from 2025 to 2030, its projection for 2030 (8.0 trillion cubic feet) is second only to EVA's projection of 8.4 trillion cubic feet. IHSGI and INFORUM show modest increases in industrial natural gas consumption from their 2011 levels, to 6.9 trillion cubic feet in 2035 in both outlooks. Projected industrial natural gas consumption declines in the IHSGI projection after 2035, to 6.7 trillion cubic feet in 2040.

Prices

Only four of the outlooks included in Table 12 provide projections for Henry Hub natural gas spot prices. EVA shows the highest Henry Hub prices in 2035 and IHSGI the lowest. In the IHSGI projection, Henry Hub prices remain low through 2035, when they reach $4.98 per million Btu, compared with $3.98 per million Btu in 2011. Natural gas prices to the electric power sector rise from $4.87 per thousand cubic feet in 2011 to $5.47 per thousand cubic feet in 2035 in the IHSGI projection. The low Henry Hub prices in the IHSGI projection are supported by an abundant supply of relatively inexpensive natural gas, with only a small increase in net exports in comparison with the increase in the AEO2013 Reference case. EVA, in contrast, shows the Henry Hub price rising to a much higher level of $8.00 per million Btu in 2035, apparently as a result of stronger growth in natural gas consumption, particularly for electric power generation, and a lower level of natural gas exports. Indeed, the EVA outlook shows the U.S. remaining a net importer of natural gas through 2035.

Henry Hub natural gas prices in the ICF and AEO2013 Reference case projections for 2035—at $6.21 per million Btu and $6.32 per million Btu, respectively—fall within the price range bounded by IHSGI and EVA. In the AEO2013 Reference case, commercial, electric power, and industrial natural gas prices all rise by between $2 and $3 per thousand cubic feet from 2011 to 2035, while residential prices rise by $3.88 per thousand cubic feet over the same period. The residential sector is also the only sector for which the AEO2013 Reference case projects a decline in natural gas consumption to below 2011 levels in 2035. ICF projects a much smaller increase in delivered natural gas prices for the commercial, industrial, and electric power sectors, with prices rising to more than $2 per thousand cubic feet above 2011 levels by 2035 only in the electric power sector. With smaller price increases, ICF projects a much larger increase for natural gas consumption in the electric power and industrial sectors from 2011 to 2035 than in the AEO2013 Reference case.