Ohio Long-Term Forecast of Energy Requirements 2020-2039, Study notes of Business

Download Ohio Long-Term Forecast of Energy Requirements 2020-2039 and more Study notes Business in PDF only on Docsity! Ohio Long-Term Forecast of Energy Requirements 2020-2039 A report by the staff of the Public Utilities Commission of Ohio May 13, 2021 Disclaimer for the Ohio Long-Term Forecast of Energy Requirements 2020-2039 report by the staff of the Public Utilities Commission of Ohio. Pursuant to Ohio Revised Code (R.C.) 4935.01(A), the Public Utilities Commission of Ohio (PUCO) staff presents year-by-year forecasts of the prevailing energy, economic and demographic trends in the United States of America (U.S.), Ohio and the utility service areas in Ohio over a 20-year period. The PUCO staff (staff) issues the following report which consists of forecasts that are projections dependent upon assumptions and historical data and trends. The future, however, is unknown. Periodic reviews of past forecasts are, therefore, a wise and necessary step to both test the validity of the current forecast scenarios and to identify and monitor emerging alterations in prevailing trends due to the impacts of more recent events. The forecasts presented in this report consider the anticipated developments in the national and international economic environment and assess their potential impact on Ohio. These forecasts are presented solely for the purposes of R.C. 4935.01(A) and should not be used or relied upon for any other purpose. iii Tables Table 2.0.1 – Domestic Crude Oil Prices ................................................................................................. 7 Table 2.1 – U.S. & Ohio Population and Real Per Capita Personal Income ..................................... 10 Table 3.1 – U.S. Per Capita Annual Peak Load, Population, and Annual Peak Load .................... 18 Table 3.2 – Annual Peak Load Forecasts for the State of Ohio and its EDU Service Areas ........... 19 Table 4.0.1 – Summary of Total Energy Requirements in Ohio by Primary Fuel Types ............... 34 Table 4.1.1 – Summary of Electricity Requirements in Ohio by End Use Sectors ........................... 36 Table 4.2.1 – Summary of Coal Requirements in Ohio by End Use Sectors .................................... 38 Table 4.3.1 – Summary of Natural Gas Requirements in Ohio by End Use Sectors ....................... 40 Table 4.4.1 – Summary of Petroleum Products Requirements in Ohio by End Use Sectors ......... 42 Table 5.0.1 – Summary of Energy Requirements by End Use Sectors in Ohio ................................ 51 Table 5.1.1 – Summary of Energy Requirements for Electricity Generation in Ohio ..................... 53 Table 5.2.1 – Summary of Industrial Sector Energy Requirements in Ohio .................................... 55 Table 5.3.1 – Summary of Commercial Sector Energy Requirements in Ohio ................................ 57 Table 5.4.1 – Summary of Residential Sector Energy Requirements in Ohio .................................. 59 Table 5.5.1 – Summary of Transportation Sector Energy Requirements in Ohio ........................... 61 1 1.0 INTRODUCTION The Ohio Long-Term Forecast of Energy Requirements 2020-2039 presents year-by-year forecasts of the prevailing energy, economic, and demographic trends in the U.S., Ohio, and utility service areas in Ohio, over a 20-year period. Historical patterns observed in the development of the prevailing trends, and the dynamic relationships among them, are analyzed and assessed in the formulation of the forecasting models and forecast scenarios. Anticipated alterations in the prevailing trends, due to anticipated business cycles or other severe macroeconomic shocks, are specifically included in the forecast scenarios when deemed relevant and feasible. This publication is prepared by the Office of the Federal Energy Advocate of the PUCO. The intent of the report is to fulfill the Commission’s mandate under R.C. Section 4935.01 (A), which states that: The Commission shall: (1) Estimate statewide and regional needs for energy for the forthcoming 5- and 10-year periods which, in the opinion of the Commission, will reasonably balance requirements of state and regional development, protection of public health and safety, preservation of environmental quality, maintenance of a sound economy, and conservation of energy and material resources. Other factors and trends which will significantly affect energy consumption such as the effects of conservation measures shall also be included. (2) Estimate statewide and regional demands within the state for energy for 20years ahead, to be used in formulation of long-range policies and proposals for reduction of demand, conservation of energy, development of potential sources of energy, and action to affect the rate of growth in demand for energy. The forecasts presented in this report include the annual requirements for energy resources, including natural gas, petroleum products, coal, hydropower and nuclear energy, by the residential, commercial, industrial, transportation, and electric utilities sectors of the state of Ohio from 2020 through 2039. Peak load forecasts for the U.S., Ohio, and the service areas of investor-owned electric distribution utilities (EDUs) operating in Ohio are also presented for the 2020 through 2039 forecast horizon. 1.1 Organization of the Report In addition to Section 1, INTRODUCTION, the report includes the following sections: Section 2, SYSTEMIC BACKGROUND AND FORECAST ASSUMPTIONS presents an analysis of certain recurrent and non-periodic historic singularities that have induced sudden, significant, and sustained alterations in economic, demographic, and energy consumption trends in the U.S. and in Ohio. It provides an assessment of the future incidence of such singularities over the 2020-2039 forecast horizon and considers the possible impacts of such 2 singularities upon the business cycle and energy consumption behavior in Ohio. This section concludes with an overview of the specific assumptions underlying this year's forecasts. Section 3, PEAK LOAD DEMAND FORECASTS, starts with a presentation of staff’s annual peak load forecast for the U.S. Next, the section presents peak load growth forecasts for the service areas in Ohio of the following EDUs: AES Ohio, (Dayton Power and Light Company), Cleveland Electric Illuminating Company, Duke Energy Ohio Inc., Ohio Edison Company, Ohio Power Company, and Toledo Edison Company. Individual service area forecasts mentioned above are then combined with a consolidated forecast for Buckeye Power Inc., American Municipal Power-Ohio Inc. (AMP-Ohio), and Ohio Valley Electric Corporation (OVEC) to obtain a statewide non-coincident peak load demand forecast. Section 4, THE DEMAND FOR ENERGY BY FUEL TYPE, presents an analysis and assessment of the total demand for each of the fuel types considered in this report (coal, nuclear, and hydro generation; natural gas; and petroleum products) and presents this information in a series of tables and graphs. Total demand for each fuel type is presented by sector (residential, commercial, industrial, transportation, and electric utilities). Section 5, THE DEMAND FOR ENERGY BY ECONOMIC SECTOR, provides the information presented in Section 4 from a different perspective. Total demand for energy within each economic sector is presented by fuel type. 2.0 SYSTEMIC BACKGROUND AND FORECAST ASSUMPTIONS Annual accounting time series that follow long-term trends such as income, population, inflation, and energy and peak load demands, change abruptly at or around certain critical points in time, at or during which certain historical shocks, or systemic singularities, are known to have occurred. Among the better-known examples of such systemic singularities are the onset and the conclusion of WWI, WWII, and the Great Depression. More recently, the traumatic fluctuations in crude oil prices between 1973 and 1986, and the surge in crude oil prices since 2003, would also qualify as systemic singularities, albeit of a lower magnitude or intensity. In the process of absorbing, reacting, adjusting, and adapting to such recurrent and non-periodic systemic shocks, or singularities, the world and the U.S. economies display sudden, significant, and sustained fluctuations in the time paths of critical energy and economic trends. Unless such critical changes are explicitly accounted for during the modeling process, accurate descriptions of the historical behavior of annual accounting time series, such as population, income, inflation, and product price and consumption levels, become problematic. Similarly, if the possibility of future singularities is ignored in the design of long-term forecast scenarios, significant divergences may emerge between the ex-ante forecasts and the ex-post observations as the forecast horizon is transformed into history through the passage of time. 5 detailing the socioeconomic and political factors influencing the establishment of these trends, staff observes that the average duration of the post-WWII trends in population growth is approximately 20 years. Staff projects a slightly lower growth trend between 2020 and 2039. The population of the U.S. was 329 million persons in 2019. It is expected to be 350 million in 2029 and 369 million in 2039. The standard error of the forecast is 0.13 percent. Table 2.1 and Figure 2.1.2 present the historical behavior of population growth in Ohio. In the case of Ohio, a reduction in the post-WWII fast growth trend occurs between 1972 and 1988. This trend represents no population growth, and corresponds to a period of major structural changes in the state’s economy, when established traditional manufacturing industries were replaced or restructured under the influence of higher energy input costs induced by the oil price increases of 1973 and 1978, as well as the costs of compliance with the emissions requirements of the Clean Air Act. Beginning in 1989, Ohio population levels display a relatively robust positive growth trend through 1997. Population growth in Ohio slows in a discernable manner between 1998 and 2019. Staff expects this population growth trend to prevail through the forecast time horizon. The population of Ohio was 11.7 million persons in 2019. In 2039, it is expected to be around 12 million. The standard error of the forecast is 0.18 percent. 2.2 Macroeconomic Background: Historical Perspective and Forecast Implications Table 2.1 and Figure 2.2.1 document the dynamic behavior of real per capita personal income growth in Ohio and the United States. It is clear that Ohio closely follows the national pattern. The difference between the two patterns is increasing over time. It is clear by inspection of Figure 2.2.1 that the growth in real per capita personal income per year does not follow a smooth trajectory over time. It follows a trajectory characterized by consecutive recession and recovery phases of the long-term business cycle. The dynamic behavior of real per capita personal income is an important determinant of expenditures on goods and services in general. It is, therefore, an important determinant of the dynamic behavior of demand for energy resources as well. Consequently, accurate analyses and assessments of the historical dynamics of growth in peak load and energy resource demands require accurate analyses and assessments of the historical dynamics of the long-term business cycle and its impact upon the trajectories of growth. Although the timing, duration, intensity, and the precipitating cause of each long-term recession recovery cycle may be different and manifold, it is nevertheless a matter of historical fact that any consecutive 20-year period depicted in Figure 2.2.1 includes at least two recession recovery cycles of one sort or another. Based upon this fact, staff anticipates a cyclical event of mild to moderate intensity and duration between 2020 and 2039. The first recessionary phase of the forecast business cycle is associated with the economic recession that began in 2008 and the slow recovery that followed and the economic downturn associated with the COVID-19 6 pandemic. Another mild to moderate business cycle is projected with a recessionary phase starting in 2024 and lasting through 2026, and a recovery phase starting in 2027 and lasting through the end of the forecast horizon. The forecasts presented in this report consider the anticipated developments in the national and international economic environment and try to assess their impact on Ohio. The forecasts are consistent with historical reality. On the other hand, the forecasts are not prophetic proclamations. They are simply attempts to provide a consistent and informed characterization of what is likely to happen. The future will always include pleasant and unpleasant surprises, as well as precedent and unprecedented developments. It is therefore essential to monitor as early as possible the macroeconomic and microeconomic developments in Ohio, the U.S., and the world at large, to detect significant deviations in actual versus predicted energy consumption patterns and in actual versus predicted economic and demographic growth patterns.. The system theoretical forecasting models utilized by staff are inherently equipped to perform this monitoring duty effectively and efficiently so that forecast scenarios may be similarly modified in a timely manner. The future size and duration of U.S. budget and foreign trade deficits should also be closely monitored due to its possible impacts upon the business cycle. A failure to address unsustainable structural and financial conditions at the national or international level could fundamentally alter the incidence and magnitude of the business cycles projected in this report. This, in turn, would similarly alter the energy forecast trajectories presented herein. 7 Table 2.0.1 – Domestic Crude Oil Prices (1946 - 2019) Sources: 1. Illinois Oil and Gas Association (IOGA) 2. Prices in 1982 Dollars = Nominal Prices divided by CPI-U, 1982-1984 = 1.00 3. CPI-U numbers from Bureau of Labor Statistics 10 Table 2.1 – U.S. & Ohio Population and Real Per Capita Personal Income (2014 - 2039) Source: Federal Reserve Economic Database; PUCO, Office of the Federal Energy Advocate 11 Figure 2.1.1 – Time Path Trajectory of U.S. Population (1960 - 2039) Source: Federal Reserve Economic Database; PUCO, Office of the Federal Energy Advocate 12 Figure 2.1.2 – Time Path Trajectory of Ohio Population (1960 - 2039) Source: Federal Reserve Economic Database; PUCO, Office of the Federal Energy Advocate 15 2026, with the accompanying mild reduction in summer peak load (for both U.S and Ohio). Slow load growth is projected to resume from 2027 to the end of the forecast horizon. Figure 3.1.2 presents the U.S. annual peak load growth trajectory from 1960 through 2039. It is calculated by multiplying the U.S. per capita annual peak load trajectory presented in Figure 3.1.1, with the U.S. population growth trajectory presented in Figure 2.1.1. Table 3.1 presents the year-by-year forecast magnitudes for the U.S. per capita annual peak load demand, U.S. population, and U.S. annual peak load demand. U.S. annual peak load demand was 786,165 megawatts (MW) in 2019. It is expected to be 828,8076 MW in 2029 and 911,7507 MW in 2039. The standard error of the forecast is 2.12 percent. 3.2 Peak Load Growth in Ohio In Ohio, the growth rate of peak load demand has mostly paralleled the growth rate of U.S. peak load demand. Since 1992, the Ohio peak load growth rate has been slowly declining. The non-coincident peak load demand forecast for Ohio in this report still exhibits slightly positive load growth. Additionally, the volatility of the observations has increased. The most drastic volatility has been observed in the years following 2000. The annual non-coincident peak load demand forecast for Ohio is performed in three stages. In the first stage, annual peak load demands for the six investor-owned utilities operating in Ohio are analyzed and forecast individually. These forecasts are presented in Table 3.2 and Figures 3.2.1 through 3.2.6. It is expected that all companies will be summer-peaking utilities. In 2019, the non-coincident annual peak load for Ohio’s six investor-owned utilities was 25,407 MW. It is expected to be 25,349 MW in 2029 and 26,507 MW in 2039. The standard error of the forecast is 3.1 percent. In the second stage, the summer peak load forecasts for Buckeye Power Inc., AMP-Ohio, and OVEC are consolidated into one category called “other.” In 2019, the non-coincident summer peak load for the “other” category was 3,901 MW. It is expected to be 3,831 MW in 2029 and 4,016 MW in 2039. The standard error of the forecast is 3.25 percent. In the third stage, the peak load forecast for the “other” category is added to the consolidated forecast of the six investor-owned utilities for the total non-coincident annual peak load demand for the state of Ohio. The result is presented on Table 3.2 and Figure 3.2.7. In 2019, the non-coincident summer peak load for the state of Ohio was 29,308 MW. It is expected to be 29,181 MW in 2029 and 30,523 MW in 2039. The standard error of the forecast is 3.0 percent. 16 Figure 3.1.1 – Time Path Trajectory of U.S. Per Capita Annual Peak Load (1960 - 2039) Source: EEI Statistical Yearbook; PUCO, Office of the Federal Energy Advocate 17 Figure 3.1.2 – Time Path Trajectory of U.S. Annual Peak Load (1960 - 2039) Source: EEI Statistical Yearbook; PUCO, Office of the Federal Energy Advocate 20 Figure 3.2.1 – Cleveland Electric Illuminating Company Summer Peak Load (1961 – 2039) Source: PUCO, Office of the Federal Energy Advocate 21 Figure 3.2.2 –AES Ohio Summer Peak Load (1961 – 2039) Source: PUCO, Office of the Federal Energy Advocate 22 Figure 3.2.3 – Duke Energy Ohio Summer Peak Load (1961 – 2039) Source: PUCO, Office of the Federal Energy Advocate 25 Figure 3.2.6 – Toledo Edison Company Summer Peak Load (1961 – 2039) Source: PUCO, Office of the Federal Energy Advocate 26 Figure 3.2.7 – State of Ohio Non-Coincident Internal Annual Peak Load (1968 – 2039) Source: PUCO, Office of the Federal Energy Advocate 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 16 20 18 20 20 20 22 20 24 20 26 20 28 20 30 20 32 20 34 20 36 20 38 M eg aw at ts Year 95% Confidence Limits PUCO FORECAST Actual History Forecast 27 4.0 THE DEMAND FOR ENERGY BY FUEL TYPE The composition of total energy requirements in Ohio in terms of primary fuels consumption is presented in Figure 4.0.1 and Table 4.0.1. Historically, growth in energy demand leveled off in Ohio between 1973 and 1978 at around 3,971 trillion British thermal units (TBtu) per year. During the 1979 to 1982 recessionary phase of the business cycle, energy demand declined sharply and bottomed out at 3,248 TBtu in 1983, reflecting in part the predicament of the rust- belt industries in Ohio. It has been increasing slowly but steadily since 1983, with mild to moderate fluctuations reflecting the sensitivity of the industrial sector’s demand for energy to the business cycle. Demand for energy in Ohio, in terms of primary fuels consumption, declined slightly from 2008 through 2010, in tandem with the recessionary phase of the latest business cycle. It is projected to continue to grow slowly with the anticipated economic recovery from 2017 through 2020. Another mild to moderate recession is predicted between 2024 through 2026 with the accompanying mild reduction in energy consumption. Slow growth is projected to resume from 2027 to the end of the forecast horizon. The estimates for TBtu were derived by converting the forecast of physical units consumed into energy content. For coal, the conversion factor is a projection based on the historic trend in the heat content of coal consumed in Ohio. That historical trend was adjusted to account for the expected impact of recent U.S. EPA rules, such as the Mercury Air Toxics Standard, on the electric generation industry, which may result in a slightly higher average heat content of coal consumed in Ohio going forward. In 2019, the demand for energy from primary fuels in Ohio was 3,074.8 TBtu. It is expected to be 3,251.6 TBtu in 2024, and 3,327.1 TBtu in 2039. The standard error of the forecast is 3.0 percent. 4.1 Electricity Electricity requirements in Ohio by sector are presented in Figure 4.1.1 and Table 4.1.1. The historical fluctuations in industrial demand in response to the business cycles are easily discernable in Figure 4.1.1. In the latest business cycle, the industrial load growth experienced a sharp decline beginning in 2008 but only lasting through 2009, declining from 58.6 million megawatt hours (MWh) to 49.5 million MWh due to recessionary pressure (see footnote 2 on page 14.). Since 2009, industrial electricity demand in Ohio has experienced modest recovery from the recessionary pressure that occurred in 2008 with demand rising from 49.5 million MWh in 2009 to 53.4 million MWh in 2012. From 2017 to 2019, electricity demand in Ohio experienced a decline of 4.1 million MWh. Industrial electricity demand is projected to continue to grow slowly along the forecast timeline with some fluctuation due to the projected business cycle, and the anticipated fluctuations in crude oil price levels. The slight growth in electricity demand is expected due to historic trends in the industrial sector. However, a mild recession is 30 The increasing price of natural gas and restrictions on availability led to declines in demand in all sectors between 1973 and 1985. Technological improvements that led to higher efficiencies in natural gas burning appliances, widespread insulation of new and existing buildings, and governmental policies to encourage energy conservation were among the means through which these reductions in demand were realized. The increasing price of natural gas also led to increased investment in exploration and improved recovery methods which, in turn, led to more abundant supplies, and dampened further price increases from 1985 to until 2006 where shale gas exploration brought prices much lower in Ohio. Between 1985 and 1996, natural gas demand increased in the commercial and industrial sectors and increased very slowly in the residential sector. Since 1996, commercial and industrial natural gas demand in Ohio has been declining slowly but steadily. In all sectors, the sensitivity of demand to weather conditions is significant. Staff projects that commercial, and industrial demand for natural gas will be influenced by fluctuations in the phases of the forecast business cycle. Demand for natural gas is forecast to increase most dramatically in the electric utilities sector, as fuel switching occurs for purely economic reasons and in response to fixed costs associated with regulation. Growth in natural gas consumption is tempered, however, by increased adoption of energy efficiency measures, most notably in the residential sector, where per capita consumption is expected to continue its modest decline over time. Residential sector natural gas demand was 290.1 billion cubic feet (Bcf) in 2019. It is expected to be 253.0 Bcf in 2024, 248.1 Bcf in 2027, and 228.3 Bcf in 2039. The standard error of the forecast is 5.4 percent. Commercial sector natural gas demand was 177.4 Bcf in 2019. It is expected to be 164.0 Bcf in 2024, 161.3 Bcf in 2027, and 161.7 Bcf in 2039. The standard error of the forecast is 5.0 percent. Industrial sector natural gas demand was 298.2 Bcf in 2019. It is expected to be 320.0 Bcf in 2024, 319.1 Bcf in 2027, and 363.3 Bcf in 2039. The standard error of the forecast is 4.7 percent. Electric utility sector natural gas demand was 361.9 Bcf in 2019, which is more than six times the demand from 2010. A large portion of this increase can be explained by the multiple additions of natural gas electric generating capacity around the state of Ohio. Additionally, growth can be explained by the fact that natural gas electric generation costs less than most other options of electricity; therefore, plants within the PJM wholesale electric marketplace operate more often. The electric utility sector natural gas demand is expected to be 472.3 Bcf in 2024, 477.9 Bcf in 2027, and 500.5 Bcf in 2039. Forecast adjustments were made in years 2019 through 2021 representing expected new natural gas combined-cycle power plants coming into operation, as well as potential additions to the capacities of existing natural gas-fired power plants. Staff made adjustments in the forecast to account for all additional natural gas combined-cycle power plants that are certificated by the Ohio Power Siting Board and are expected to be operating by 31 2021 (OPSB, n.d.). For the purposes of forecasting natural gas consumption, new natural gas combined-cycle plants are assumed to operate at a 70 percent capacity factor. Uncertainty around whether these plants actually progress from certification to completion, and in what year, also represents a significant source of forecast error. The standard error of the forecast is 12.6 percent. Natural gas demand has also been increasing in Ohio’s transportation sector. Transportation sector natural gas demand was 30.0 Bcf in 2019. It is expected to be 29.7 Bcf in 2024, 30.1 Bcf in 2027, and 31.6 Bcf in 2039. The standard error of the forecast is 8.3 percent. The transportation historical data is acquired from the U.S. Energy Information Administration (EIA); therefore, the EIA definition for natural gas transportation also applies to this forecast. That definition includes both commercial vehicle demand as well as natural gas pipeline compressor station demand. Due to recent shale gas activity and commercial fleet vehicle conversion projects, natural gas demand has increased significantly in this sector. This trend is expected to continue into at least the near future as shale gas activity continues to expand and vehicle conversion projects are planned. Total natural gas demand was 1,157.6 Bcf in 2019. It is expected to be 1,238.9 Bcf in 2024, 1,236.5 Bcf in 2027, and 1,285.4 Bcf in 2039. The standard error of the forecast is 4.0 percent. 4.4 Petroleum Products Demand for petroleum products by sector is presented in Figure 4.4.1 and Table 4.4.1. In 2019, 78.7 percent of the total demand for petroleum products was generated by the transportation sector, and 14.6 percent was generated by the industrial sector. The remaining 6.7 percent was used by the residential, commercial, and electricity generation sectors combined. Petroleum products consumption in Ohio peaked at 250 million barrels in 1978. Between 1978 and 1983, in response to the higher crude oil and finished product prices, as well as the prevailing economic recession at the time, petroleum products consumption declined to 185 million barrels. Since 1983, petroleum products consumption levels in Ohio have increased slowly along a trajectory that fluctuates in response to the phases of the business cycle and temporary changes in crude oil prices. High crude prices and the accompanying economic slowdown resulted in significant declines in petroleum products consumption in Ohio from 2008 to 2019. A milder downturn in petroleum products consumption is anticipated from 2025 through 2027. The projections of petroleum consumption in the transportation sector have also been trending downwards in response to the Corporate Average Fuel Economy (CAFE) standards established by the Energy Independence and Security Act of 2007. Stringent CAFE standards together with government incentives for fuel efficient vehicles in the United States have accelerated the recent production of electric vehicles. 32 Transportation sector demand for petroleum products was 166.575 million barrels in 2019. It is expected to be 175.087 million barrels in 2025, 174.766 million barrels in 2027, and 177.147 million barrels in 2039. The standard error of the forecast is 1.59 percent. Industrial sector demand for petroleum products was 29.5 million barrels in 2019. It is expected to be 32.916 million barrels in 2025, 33.878 million barrels in 2027, and 39.646 million barrels in 2039. The standard error of the forecast is 4.8 percent. Total demand for petroleum products in Ohio was 211.207 million barrels in 2019. It is expected to be 223.232 million barrels in 2025, 223.89 million barrels in 2027, and 232.144 million barrels in 2039. The standard error of the forecast is 1.74 percent. 35 Figure 4.1.1 – Electricity Requirements in Ohio (1960 – 2039) Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 36 Table 4.1.1 – Summary of Electricity Requirements in Ohio by End Use Sectors History (2014 – 2019), Forecast (2020 – 2039) Million Megawatt-hours per Year Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 37 Figure 4.2.1 – Coal Requirements in Ohio (1960 – 2039) Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 40 Table 4.3.1 – Summary of Natural Gas Requirements in Ohio by End Use Sectors History (2014 – 2019), Forecast (2020 – 2039) Billion Cubic Feet per Year Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 41 Figure 4.4.1 – Petroleum Products Requirements in Ohio (1960 – 2039) Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate 42 Table 4.4.1 – Summary of Petroleum Products Requirements in Ohio by End Use Sectors History (2014 – 2019), Forecast (2020 – 2039) Million Barrels per Year Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 45 Source: S&P Global-2021 Source: S&P Global-2021 Generation from renewable resources other than hydro is not delineated in these forecasts, because historically low usage in Ohio makes it impractical to independently forecast their contribution. To the extent that generation from renewable resources expands in the future, the fossil fuel components of energy input for electricity generation as illustrated in Figure 5.1.1 and 46 Table 5.1.1 would be reduced accordingly, though not necessarily on a one-to-one energy equivalent basis. Total energy input demand into the electricity generation sector was 1,051.8 TBtu in 2019. It is expected to be 1,184.8 TBtu in 2024, and 1,196.0 TBtu in 2039. The standard error of the forecast is 8.5 percent. 5.2 The Industrial Sector Industrial sector energy requirements are presented in Figure 5.2.1 and Table 5.2.1. The industrial sector energy demand trajectory displays the most dynamically varying behavior among all sectors. This is attributable, in part, to the usual dynamic of the business cycle. As real per capita income declines during the recessionary phase of the business cycle so does the demand for durable goods. As industrial output is reduced to meet the lower demand levels, demand for industrial inputs, including energy inputs, is also reduced. During the recovery phase of the business cycle, as real per capita income grows so does the demand for durable goods. As industrial output increases to meet the increasing demand levels, demand for industrial inputs, including energy resources, also increases. Historical economic singularities involving sudden, significant, and sustained increases in energy resource prices have led to sudden, significant and permanent declines in industrial demand for energy resources, as witnessed by the predicament of conventional iron and steel mills in the U.S. and in Ohio during and in the aftermath of the 1973-1984 oil price cycle. As production costs in energy-intensive industries increased in response to the nature and extent of the energy input price increases, many firms were not able to maintain their competitive advantage in the global marketplace and had to cease or scale down production. As industrial production went down, so did the demand for energy resource inputs in the industrial sector. The recessionary phases of business cycles that are preceded by, or accompanied by, sudden, significant and sustained energy price increases are, therefore, characterized by sudden, significant, and permanent reductions in the industrial demand for energy resources. The alteration in the structure of the state’s industrial base can be surmised from the behavior of the industrial demand for coal, which fell from a high of 732.5 TBtu in 1970 to a low of 8.2 TBtu in 200, an 88 percent decline in demand. This decline is clearly reflected in, among other things, the predicament of traditional manufacturing industries in Ohio, including iron and steel mills, and the decline of other direct industrial uses for coal. Higher energy resource costs eventually led to an increase in the demand for the development and widescale adoption of more energy efficient technologies by new or surviving industrial firms. More energy efficient production technologies, in turn, led to slower growth in energy demand during the recovery phase of a business cycle associated with an energy price shock. These and other considerations are among the contributing factors to the observed stepwise 47 decline in the time path trajectory of industrial demand for energy in Ohio, and its rather moderated growth during the recovery phases of the business cycle, since the early 1970s. Industrial sector energy demand peaked and stabilized at about 1,528.9 TBtu between 1969 and 1974. Demand declined to approximately 1,400 TBtu between 1975 and 1979. As production costs and competitive advantage in iron and steel production continued to shift further in favor of overseas producers during the 1979 to 1982 recessionary period, industrial energy demand declined precipitously from 1503.9 TBtu in 1979 to 1015.8 TBtu in 1983. Industrial energy demand stabilized from 1983 through 1999, fluctuating between a range of 1015.8 TBtu and 947 TBtu. Between 1999 and 2001, industrial energy demand declined from 947 TBtu to 841.1 TBtu. It stabilized again between 2001 and 2007, fluctuating within a range of 841.1 TBtu and 807.5TBtu. Subsequent to the recession, there was a period of persistent yet muted growth in industrial sector energy requirements. PUCO staff recognizes that a significant recession has occurred in 2020 due to society’s reaction to the COVID-19 virus. The last uniform observation of this forecast was 2019. Given that the recession is not within this forecast; however, PUCO staff has been tracking the impacts on energy consumption. There was a 5-15 percent decrease in consumption from the 5-year average for several weeks before stabilizing to a 1-2 percent decrease. The full impacts of COVID-19 will influence the next forecast PUCO staff produces due to the time series nature of PUCO’s forecasting techniques. Industrial sector energy demand in Ohio was 721TBtu in 2019. It is projected to be 765.7 TBtu in 2024, 763.9 TBtu in 2027, and 829.7 TBtu in 2039. The standard error of the forecast is 9.16 percent. 5.3 The Commercial Sector Commercial sector energy requirements are presented in Figure 5.3.1 and Table 5.3.1. Since 1983, the Ohio economy has continued to become more service oriented and less manufacturing oriented. The expansion of the service sector in Ohio has led to a slow but steady growth in commercial energy demand from 287.5 TBtu in 1983 to 360.1 TBtu in 1997. Since 1997, commercial sector energy consumption has stabilized around a near zero annual growth trend until 2015. The commercial sector has experienced slight growth since 2015. Electricity and natural gas are the fuels of choice in the commercial sector. Growth in commercial sector electricity demand has increased consistently from 90.4 TBtu in 1982 to 159.8 TBtu in 2013. Natural gas demand has been more susceptible to the phases of the business cycle, variations in weather conditions, and the fluctuations in the price of natural gas. Commercial sector energy demand in Ohio was 376.2 TBtu in 2019. It is expected to be 357.9 TBtu in 2024, 358.9 TBtu in 2027, and 363.1 TBtu in 2039. The fluctuations in the forecast behavior of commercial sector energy requirements reflect the anticipated impacts of the 50 Figure 5.0.1 – Total Energy Requirements in Ohio by Sector (1960 – 2039) Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: Office of the Federal Energy Advocate. 51 Table 5.0.1 – Summary of Energy Requirements by End Use Sectors in Ohio History (2014 – 2019), Forecast (2020 – 2039) Trillion British Thermal Units per Year Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 52 Figure 5.1.1 –Energy Requirements for Electricity Generation in Ohio (1960 – 2039) Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 55 Table 5.2.1 – Summary of Industrial Sector Energy Requirements in Ohio History (2014 – 2019), Forecast (2020 – 2039) Trillion British Thermal Units per Year Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 56 Figure 5.3.1 – Commercial Sector Energy Requirements in Ohio (1960 – 2039) Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 57 Table 5.3.1 – Summary of Commercial Sector Energy Requirements in Ohio History (2014 – 2019), Forecast (2020 – 2039) Trillion British Thermal Units per Year Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 60 Figure 5.5.1 – Transportation Sector Energy Requirements in Ohio (1960 – 2039) Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. 61 Table 5.5.1 – Summary of Transportation Sector Energy Requirements in Ohio History (2014 – 2019), Forecast (2020 – 2039) Trillion British Thermal Units per Year Source: Data: USDOE-EIA; PUCO, Office of the Federal Energy Advocate. Forecast: PUCO, Office of the Federal Energy Advocate. BIBLIOGRAPHY Anderson, T. W., An Introduction to Multivariate Statistical Analysis, New York, John Wiley, 1958. Aramanovich, I. G., et. al., Mathematical Analysis, H. Moss (Trans.), I. N. Snedden (Ed.), Oxford, Pergammon, 1965. Basmann, R. L., Modern Logic and Suppositious Weakness of the Empirical Foundations of Economic Science, Schweizerische Zeitschrift fur Volkvirtschaft und Statistik, April 1975. Basmann, R. 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