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Renewables have increased the capacity for electricity production

So, capacity utilization has decreased

Posted on October 19, 2020

As we’ve discussed in a previous post, electricity production has outpaced sales. That suggests a growing number of households and businesses generate some or most of their own electricity. Today, a related idea sparks our curiosity: the ongoing decrease in capacity utilization of electric power generation, transmission, and distribution.

The graph above shows the annual industrial generation, transmission, and distribution of electricity (blue line). It’s measured as an index with a value of 100 in 2012. The positive slope of this line means that the production of electricity has increased over time.

The graph also shows the capacity utilization of electric power generation, transmission, and distribution (red line). It’s measured as the percent of total electricity production capacity that’s actually put to use. Between 1982 and 1999, this line also had a positive slope, meaning that utilities were using a growing percentage of the installed electric power generation and distribution network. Yet, since its 1999 peak, average capacity utilization has decreased.

Advances in renewable sources of electricity—for example, solar and wind—might help explain the diminished capacity utilization in overall electricity production.

  1. Solar panels and turbines depend on the weather, and the weather can be unpredictable.
  2. To ensure the lights go on at the flip of a switch, solar parks and wind farms that supply electricity are built over broad areas where sunlight and steady winds can be expected, but not always guaranteed.
  3. So, to meet periods of high demand (say, a hot summer) in times of low production (say, cloudy or windless days), excess production capacity must be built in.

Recommended reading: This Economics Synopses essay by Diego Mendez-Carbajo sheds more light on renewable sources of electricity and energy markets.

How this graph was created: Search for and select “Industrial Production: Utilities: Electric Power Generation, Transmission, and Distribution (NAICS = 2211).” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Capacity Utilization: Utilities: Electric Power Generation, Transmission, and Distribution (NAICS = 2211).” Next, from the “Edit Lines” tab, select Line 1 and under “Modify frequency” choose “Annual.” Repeat the same step for Line 2. Next, from the “Format” tab, under Line 2, select “Y-Axis position: Right.” Last, select “Mark type: Diamond” for both lines.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: CAPUTLG2211S, IPG2211S

Trends and cycles in US productivity

Posted on August 12, 2024

Today we look at total factor productivity, which is a measure of economic efficiency that captures how effectively an economy uses its inputs to produce outputs. TFP reflects technological progress through innovation and adoption of new technologies, allocation of resources, and other factors that boost the overall economic product beyond just increases in labor and capital.

Improvement in TFP is crucial because it drives long-term economic growth and raises living standards. The FRED graph above shows two interesting observations related to this.

First, over the long run, US TFP has grown significantly: Between 1955 and 2015, it improved by about 55%. This increase represents a substantial improvement in the nation’s ability to generate economic output from its resources.

However, the rate of TFP growth has slowed noticeably in recent decades. Particularly since 2005, TFP has increased by only about 5%. This slowdown is a concern for economists and policymakers because it suggests a potential decline in the pace of innovation or the economy’s ability to adopt new technologies.

Second, the graph also clearly shows that TFP tends to significantly drop during recessions, indicated by the shaded areas. This doesn’t necessarily mean that the economy literally “forgets” how to produce goods and services efficiently. Instead, these dips reflect several economic realities during downturns: For example, capacity utilization often decreases, leading to less-efficient use of existing resources. As the economy recovers, TFP typically rebounds, suggesting that these efficiency losses are generally temporary rather than permanent losses of productive knowledge or capability.

How this graph was created: Search FRED for “total factor productivity” and click on the series for the United States.

Suggested by Aakash Kalyani.

The increasing appetite for air conditioning

Tracking changes in the output of electric and gas utilities

Posted on September 10, 2020

The FRED Blog often discusses the regular economic ups and downs that occur over the course of a year (eg, fruit and house prices). Today, we look at some big changes in the seasonal pattern of electricity and gas production.

The data are from the Board of Governors of the Federal Reserve System—specifically, the Industrial Production and Capacity Utilization (G.17) survey—which show the quarterly changes in the industrial production of electricity and gas utilities.*

The FRED graph above shows electricity and gas production from 2000 to 2020, which peaks twice per year: in winter (first quarter) and summer (third quarter). For most of these 20 years, the winter and summer peaks have been very similar in value. But that has not always been the case.

Traveling back in time with FRED, we can see the same quarterly percent changes in electricity and gas production for 1939-1960. Notice how little variation there was in production between 1939 and the end of 1946. Heavier reliance on coal for heating and the military production effort during WWII can explain this steady pattern in the data.

In the first decade after WWII, winter was the peak annual season for producing electricity and gas, with no spikes in production during the summer (third quarter). But the increase in the use of air conditioning by businesses and households changed things: Summer soon became the second annual peak for utility production that we see today.

The FRED Blog team hopes you are safely enjoying the end of summer, perhaps from the comfort of your temperature-controlled home or office. We thank you for including our blog in your summer reading and hope you enjoy it year-round.

How this graph was created: Search for and select “Industrial Production: Electric and Gas Utilities, Not Seasonally Adjusted, (IPG2211A2N).” From the “Edit Graph” panel, customize Line 1 by searching for and adding “Industrial Production: Electric and Gas Utilities, Seasonally Adjusted, (IPUTIL).” Next, type the formula ((a-b)/b)*100 and click “Apply.” Use the “Format” tab to select “Mark type: Diamond.” To travel back in time with FRED, adjust the dates of the graph.

*Btw, we use the formula ((Non-seasonally adjusted production – Seasonally adjusted production) / Seasonally adjusted production) x 100 to show by how much the production of electricity and gas utilities changes each quarter relative to its seasonally adjusted value. We multiply that ratio by 100 to show the value of those changes as a percent.

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: IPG2211A2N, IPUTIL


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