Thread by @ThomasASpencer

1/n
Ask, and ye shall receive.

So, why did UK electricity demand fall so much between 2005-18?

Let's look into it.

Teaser ... it's not what you think; at least not predominantly.

2/n
Before starting, a few methodological notes. In any sector or at the macro level, demand can change because of:
- activity levels: total quantum of economic activity.
- structure of activity: more or less energy intensive modes
- electricity intensity of activity.

3/n
In the analysis that follows, I'll keep using this kind of breakdown to tease out what was due to changing economic structure (e.g. deindustrialization), what was due to actual energy efficiency improvements.

Ok, let's go.

4/n
First and highest level decomposition: both increasing population and increasing GDP per capita would have, all else equal, driven an increase in electricity demand.
However, massive improvements in electricity intensity of GDP more than counteracted this.

5/n
Why did electricity intensity of GDP improve:
1. Partly 'cause the share of industry in GDP fell (deindustrialization).
2. Partly 'cause industry became more electricity efficient.
3. But largely because non-industry sectors became much more electricity efficient.

6/n
So at the macro level it wasn't deindustrialization that drove the improvement in UK electricity intensity of GDP and hence the fall in UK electricity demand.

It played a role but wasn't the main driver by some margin.

So what drove improvements in non-industry sectors?

7/n
Starting with residential sector:
1. Both growing population and growing household consumption expenditure would have driven up demand.
2. But growing household consumption was not proportionately spent on increasing households' physical footprint.

8/n
Residential sector continued:
3. By some margin, the largest contribution came from real physical improvements in electricity intensity (kWh/m2 of household floor space).
This drove down residential electricity consumption significantly in absolute terms.

9/n
Moving now to the services sector:
1. Services value added grew substantially, and would have significantly driven up demand, all other things being equal.
2. But the physical footprint of services sector did not increase proportionately.

10/n
Services sector continued:
2. This means: services value added increased, but services floorspace did not (at least not proportionally).
3. Real physical electricity intensity of services sector improved (kWh/m2), further driving down demand.

11/n
Now the manufacturing sector.
1. Within sector structural change played some role: the share of energy intensive manufactures (EIM) in total manufacturing value added declined somewhat.
2. But improved electricity intensity of EIM had a larger effect.

12/n
Manufacturing sector continued:
3. But by far the largest impact was from non-energy intensive manufacturing improving its energy intensity.

So even within the manufacturing sector, structural change (decline of energy intensive sectors) was not the predominant driver.

13/n
To sum up:
1. Deindustrialization played a much smaller role than often implied in the public discourse.
2. Dematerialization was a more important factor: growth in household consumption or services VA did not require proportionate increases in their physical footprint.

13/n
2. cont': in the services sector: the financialization of the economy (high value added per unit physical footprint) is probably an important aspect.
3. Real improvements in physical electro-intensity (kWh per unit physical activity) played a large role in all sectors

14/n
4. Aspects of dematerialization can't be repeated in emerging countries. During urbanisation: growth in household consumption or services will be associated with growing physical footprints.

15.
5. But for a mature economy: saturation, dematerialisation, and only a weak rebound effect are real. It has not been true that energy efficiency has led to more energy consumption.

Ends.