Electricity in Economic Growth (1986) / Chapter Skim
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1. Introduction, Conclusion and Recommendations
1. Introduction, Conclusion and Recommendations
Pages 1-14
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From page 1... ...
Our report does not address the question of electricity supply -- that is, which generation technolog ies in what combinat ions should be used to serve demand . Ordinary experience suggests that electricity use should depend on the general level of economic activity, the prices of electricity and its alternatives, public policy, the regulatory environment, and the development of novel applications, among other factors.
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In particular, there are important regional differences in providing and using electricity. o Electricity prices depend mainly on investment requirements for all types of plant and equipment, interest rates, fuel costs, and allowed rates of return.
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With regard to regulation, better knowledge of the relationships between electricity use and the economy, concerning both aggregate and particular end uses, should facilitate better decisions on many issues: rate design, capital investment, required reserve capacity, fuel contracts, cost recovery rules' and admissible research costs. With regard to individual f irms, the decisions of utilities as well as their suppliers would of course benefit from a better grasp of the interactions at work.
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From page 4... ...
The term connotes an application and associated equipment that use the special qualities of electricity, often for innovation. Electrification may increase or decrease electricity consumption, depending on such factors as whether there is a change from a nonelectrical to an electrical production technique, the amount of electricity consumed per unit of output, and the total units of output produced.
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5 Regu ration ~ Technolo~ | Electrification Productivity Growth Commercial ~ Price of Substitute Fuels Residential 1~ Income Eiectricity Using Devices ~;= ~ Product -~ Consumption ~ I nd ustria I SUPPLY D EMAN D FIGURE 1-1 Relationships affecting electricity and economic growth.
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Chapter 4 looks at examples of the influence of electrification on economic activity, emphasizing further technical potentials. This chapter discusses the characteristics of various forms of electrification, their potential engineering and economic effects on general productive efficiency, and whether they may result in a net increase or decrease in electricity consumption per unit of output.
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CONCLUS IONS Electricity Consumption Electricity use and gross national product have been, and probably will continue to be, strongly correlated. Numerous representations of the relationships between economic activity and electricity use are possible.*
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Productivity Growth Productivity growth may be ascribed partly to technical change; in many industries technical change also tends to increase the relative share of electricity in the value of output, and in these industries productivity growth is found to be the greater the lower the real price of electricity, and vice versa. Economic growth, or percentage change in GNP, results from growth in three factors: capital input, labor input, and productivity.
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From page 9... ...
The decline in the real cost of electricity, which resulted in part from dramatic increases in the thermal efficiency of electric generation, increased electricity use and stimulated productivity growth until the early 1970s. The reversal in the decline of electricity costs, combined with a rise in the prices of primary fuels after the international oil price increases of 1973 and 1979, has permanently reduced productivity in many industries from what it would otherwise have been.
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From page 10... ...
We can expect this trend to continue. The Effects of Price Changes Electricity prices and alternative fuel prices affect electricity consumption in two ways: first, they directly affect the use of electricity and nonelectric fuels as input factors of production; second, they indirectly affect productivity growth and thereby economic growth.
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From page 11... ...
However, if the trend toward a leveling off in sectoral electricity intensity growth that began in the late 1970s continues, future shifts toward less electricity-intensive goods and services are likely to dampen electricity demand growth relative to national output.
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It is uncertain whether recent declines in sectoral electricity intensity growth represent the beginning of a new long-term trend or a response to short-term influences. Regional Differences Valid conclusions about electricity demand drawn from national data do not necessarily pertain to regional circumstances; there are significant regional differences in such factors as economic output, prices, electricity supply mix, availability of generating capacity, climate, and regulatory environment.
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From page 13... ...
i wi EN 2. To foster increased productivity, policy should stimulate increased efficiency of electricity use, promote the implementation of elect~otechnclogies when they are economically justified, and seek to lower the real costs of electricity supply by removing any regulatory impediments and developing promising technologies to provide electricity.
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From page 14... ...
Although favorable electricity supply conditions of themselves will not assure economic growth, a lack of adequate supply would almost certainly constitute a serious impediment to such growth. In making this point we are keenly aware of the need to learn more about the correlations and the causal relationships between economic growth and electricity use.
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Key Terms
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