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Renewables have increased the capacity for electricity production

So, capacity utilization has decreased

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

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