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Electricity efficiency gains, demand side management (DSM) programs and distributed generation (DG) have reduced customer consumption and cannibalized traditional utility-supplied power, according to a Fitch Ratings report.

As a consequence, Fitch says it believes that utilities will have to include efficiency, DSM and DG as part of their product portfolio going forward.

The firm reports that the Energy Information Administration recently revised its forecast for retail U.S. electricity sales growth to 0.7% per year through 2040. Fitch expects substantial regional variance from the national forecast, with growth in the Southeast and Southwest.

Energy efficiency, whether mandated or promoted by favorable cost economics, continues to play a significant factor in dampening retail sales, as does net metering and DG, Fitch adds. In addition, Fitch notes that the economic recovery and expansion since 2009 has done little for electricity sales growth.

According to the report, low electricity sales growth will pressure unit costs and challenge the economics and benefits of future capital investments and rate design. As such, capital investments and rate design will need to be restructured as costs are allocated over a changing customer profile, Fitch says.

The firm states that the economics of energy efficiency are compelling, as the benchmark levelized cost of electricity used to compare the cost of energy efficiency programs is substantially less than all forms of conventional or renewable power generation. Fitch adds that efficiency is an effective tool in displacing new power generation, produces peak load shaving and avoids or at least reduces the highest-cost sources of electricity generation.

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