Get Ready for Fuel Switching

In regions of the country that rely primarily on heating oil or propane for heat, including the Northeast and parts of the Upper Midwest, something pretty surprising has happened over the past six months. The cost of delivered heat from these fuels has risen above that of electricity—even when that electricity is used for electric-resistance heating in baseboard radiators. (For more on comparing fuel costs, see the BackPage Primer.) Electric-resistance heat can sometimes be cheaper than even natural gas, particularly for buildings with old furnaces and leaky, poorly insulated ducts. If a heat pump is used to double or triple the efficiency of electric heating, heating with electricity is almost always cheaper than using natural gas, oil, or propane (though purchasing and installing a heat pump is expensive).

Barring a significant price drop for heating oil or propane, and if the price of natural gas keeps rising faster than that of electricity (which is regulated), lots of buildings may be switching from their standard heating fuels to electric heat this coming winter—which could wreak havoc in the utility industry.

In recent decades, the peak demand for electricity at many utility companies has shifted from winter to summer, due largely to increases in air-conditioning. That trend could reverse in cold regions if customers switch from oil or gas heating to electricity. Small heating loads could convert to electricity very quickly as homeowners turn off their oil- or gas-fired furnaces and boilers and install portable electric heaters, electric baseboard heat, or heat pumps. Setting up a portable space heater can be very inexpensive and rarely involves an electrician—but it can overload electrical circuits. The incidence of house fires could increase dramatically this coming winter.

There is little evidence that utility companies, public utility commissions, or public officials are paying attention to this trend, but it wouldn’t surprise me to see electric capacity shortages—and even brownouts or rolling blackouts—in places like northern New England this winter. As electricity demand grows, so too will the environmental impacts of power generation—especially if shortfalls are made up by power plants in the Midwest, which are predominantly coal-fired.

To head off this surge in electricity use, the utility industry should dust off its demand-side management programs and ramp them up—supporting such programs as lighting upgrades, appliance replacement, and off-peak electricity rates for water heating. Energy conservation programs should expand to address building envelope improvements, not just electrical loads. Adding insulation and high-performance storm windows will become common strategies for reducing

electricity use. Utility companies and state energy offices should ramp up public education campaigns urging homeowners to invest in energy conservation and warning of the potential for space heaters to start house fires.

Over time, electricity prices will rise, partly reflecting the rising cost of generating power and partly responding to the laws of supply and demand. Because the utility industry is regulated, however, such price increases occur fairly slowly. It’s unlikely that electricity prices can increase quickly enough to prevent widespread fuel switching.

– Alex Wilson