Indiana electricity rates are projected to increase 20 percent over the next six years, according to a report prepared by analysts at Purdue University.
While more efficient appliances will slow overall demand, impending environmental rules may dramatically impact energy rates.
Major factors driving up rates are costs associated with ongoing new plant construction, continued installation of pollution control technology and modernization to extend the operational lifetime of existing plants, said Douglas Gotham, director of the State Utility Forecasting Group, a state-funded panel of researchers based at Purdue.
At the same time, lower demand is due in part to an increasingly efficient use of electricity, he said.
Three factors are driving increased efficiency: federal standards for lighting; utility-sponsored energy efficiency programs required by the Indiana Utility Regulatory Commission, such as rebates for high-efficiency appliances and improving insulation and weather stripping in low-income housing; and rising energy prices, which will cause consumers to conserve electricity.
"Demand is predicted to rise at an average rate of only 1.3 percent per year over the next 20 years," Gotham said. "This is much lower than the 2 to 3 percent annual growth in demand we normally see."
The analysts prepared a separate chapter to discuss proposed federal environmental rules, which may be phased in over the latter part of this decade. The rules will include steps to reduce emissions of mercury and greenhouse-warming gases, protect aquatic wildlife that are drawn into water-cooling systems at power plants and factories, and safeguard against spills of coal-ash sludge.
More stringent environmental rules would hit Indiana harder than some states because of its heavy use of coal, Gotham said.
More than 90 percent of the electricity generated in the state is from coal-fired power plants. As of 2009, Indiana ranked fourth in the United States in the amount of nitrogen oxides and sulfur dioxide emitted annually.
However, the potential economic impacts will not be addressed until a new report is prepared, perhaps later this year, Gotham said.
"The future impacts of environmental rules represent a big unknown," he said. "They will have an impact, but they are not included in the forecast, and we shouldn't speculate on how severe the impacts might be. We will do an economic analysis in a separate analysis."
The current report, entitled "Indiana Electricity Projections: The 2011 Forecast," contains projections of the state's energy needs between 2010 and 2029 and was prepared for the Indiana Utility Regulatory Commission (IURC). Gotham presented the report's findings on Wednesday (Sept. 21) to the Indiana General Assembly's Regulatory Flexibility Committee.
The forecast was prepared by Gotham; Paul Preckel, a Purdue professor of agricultural economics; and analysts Forrest Holland, Marco Velastegui, David Nderitu and Tim Phillips.
Among the report's findings is the prediction that by 2017, inflation-adjusted electricity rates will increase by 20 percent overall, with rates for the residential sector rising 27 percent, for commercial 20 percent and for industrial 16 percent. Rates are projected to level off over the rest of the 20-year period, increasing a total of 18 percent by 2029, Gotham said.
The panel used a system of sophisticated mathematical models to predict future trends for the state's residential, commercial and industrial power users. Projections of electricity demand are based on the estimated impact of manufacturing output and employment, commercial employment, population, energy prices, and other factors.
Consumption is projected to grow 33 percent by 2029, from this year's 102,000 gigawatt hours to nearly 136,000 gigawatt hours. A gigawatt is 1 billion watts. One gigawatt hour is the constant use of one gigawatt for an hour, or enough energy to serve the annual needs of about 90 average-sized Indiana homes.
The projections are done on a statewide basis. Some utilities would be expected to experience lower growth than others based on the economic and geographic factors they face. Similarly, price increases will vary among utilities, Gotham said.
The report looked at three categories of electricity provided to users: baseload power, which is produced by plants that generate electricity throughout the day; peaking power, which is produced by plants providing electricity only during times of heaviest demand, such as the hottest periods on summer days; and cycling power, which is produced by plants providing power for uses that are between peaking and baseload demand.
The report projects no need for new resources until 2013, with a need for 1,190 megawatts of baseload resources, 770 megawatts of peaking and 640 of cycling identified by 2020.
"It's the first time in a while that we've had no projected need for additional resources over the short term," Gotham said.
The Purdue-based group prepares the reports about every two years to predict Indiana's future electricity requirements and the need for new generating capacity.
A copy of the report is available on the State Utility Forecasting Group's website at http://www.purdue.edu/dp/energy/SUFG/
The forecasting group does not make recommendations. The studies are done in accordance with a state law enacted in 1985 to provide the state regulatory commission with an impartial projection of electricity consumption and peak demand. That information is used to determine whether the need exists for additional power plants. This is the 13th full report compiled by the group.
The forecasting group is housed within Purdue's Energy Center, which is part of the university's Discovery Park.