This is Eight Minute Climate Fix – a podcast helping you understand the energy and climate challenge in just a few minutes – I’m your host, Paul Schuster
The demand for electricity hasn’t really changed very much since about the 1990s – it’s been pretty flat. And that’s despite a whole host of new plug-in devices, datacenters. For all of the demand for NEW power, there’s been a corresponding efficiency improvement in offsetting load. Which means that utilities have had it kinda easy in simply operating and maintaining their existing infrastructure.
That’s changing in the throes of the energy transition. As buildings and vehicles electrify – as new AI datacenters pop up across the country, the demand for new electricity is going to start to grow again – and that growth is going to stress a utility and regulatory system built around flat demand.
Today, let’s discuss the import of this new electricity demand and what the implications may really be.
Eight minutes – it’s how long it takes the sun’s rays to hit earth, or, about how long it takes for the kids to rip through unwrapping all of their presents on Christmas morning. I hope they enjoyed that ugly sweater I got for them!
Let’s get it on.
The last two decades have showed us that economic growth has now, officially, been decoupled from power demand. Since 2000, the US’ gross domestic product has grown, on average, a little over 2.1% per year – but electricity demand has been flat.
An increased focus on energy efficiency means that we’re now generating more global output PER UNIT of electricity than we ever have before.
That means that power utilities have spent the last twenty-plus years in a system that has had the good fortune to focus on reliability and safety – but not on how to grow. That … is changing.
Load growth - that measurement of how the demand for power is changing, is expected to surge in the US over the next decade. Partially due to an increased electrification of our buildings and vehicles and industrial process – and partially due to an increased demand for AI and cloud computing services from electricity intensive datacenters.
But while we know that demand is coming, power utilities are having a difficult time managing to this new reality. For one thing, predicting new power demand is apparently pretty difficult.
In the early 2000’s – during that first period of flat power demand, electric utilities were caught off guard. According to RMI, their long term power forecasts during that period consistently OVER-estimated that need for new power by about 12% . That led to an overbuild of new infrastructure that wasn’t needed – and drove up the costs for power for all consumers.
Fast forward to today and we’re at the other end of the spectrum. RMI conducts a periodic review of the long term strategic plans that utilities submit to their regulators, something called an Integrated Resource Plan or IRP. In those IRPs, utilities present their best forecast of load growth in the future.
RMI’s review found that in January of 2021, the average expectation of growth was about 8.2%.
By August of 2022, that forecast had been revised to 10.3% and by December of last year, that forecasts had been revised again to 15%.
RMI’s most recent review of IRPs in June of this year saw the forecast adjusted AGAIN to 23.9% load growth – utilities NOW continue to underestimate the need for new power.
In fact, the International Energy Agency has their own prediction on load growth. Their estimates aren’t 20 something percent … but more like 37% through 2035.
If we’re going to meet our climate action goals … utilities, regulators and policy makers are going to have to radically change how they think about power demand. The implications have a profound impact on the pace of the energy transition.
The difference between the utility’s 24% growth versus the IEA’s 37% growth is the equivalent of stalling the transition by almost a decade.
The utility system isn’t used to thinking about rapid growth. And this is starting to affect not just the energy transition – but an industry that is ALL about rapid growth – high technology.
Take AI and the huge demand that seemed to come out of nowhere for the datacenters needed to support this new technology. And that’s on top of a increased usage of cloud computing and offsite servers.
As Wood Mackenzie’s Chris Seiple points out, the constraint on companies looking to build out and capitalize on the AI boom may simply be whether they can find … enough … power.
Add in the fact that those same technology companies are looking to power their datacenters with renewable energy. Now we’ve got a situation where new generation is coming online to power new demand … and we’re looking at a really significant portion of that being renewable.
Which is good, right?
Well, the problem – is that, right now, we’re just keeping up with the new demands on the power system. As Seiple points out, WoodMac’s renewables additions forecast anticipates being able to handle about 2% load growth every year – which just keeps up with increased demand.
But that means that we’re not replacing any fossil units with those renewable facilities. Our utilities NEED those old, emissions heavy facilities to support the existing demand for power. So – what we’re seeing is exactly what we DON’T want to have happen from a climate perspective – delayed closures of coal and gas units DESPITE the heavy build-out of renewables.
The utility process needs a make-over, one that is aligned with rapid growth and infrastructure build out. One that alleviates procedural hurdles without sacrificing the emphasis on reliability and safety. One that shrinks the planning cycle.
Today’s infrastructure planning is done on a 5-10 year trajectory … try explaining that to a technology executive who is looking at datacenter needs over the next few months!
Power utilities are at the nexus of the energy transition – which means great opportunity along with great challenges. Without a real change in the way that they address load growth and adapt to changing electricity demand … power utilities may end up being one of the biggest bottlenecks toward a cost effective energy transition. A coordinated effort, between utilities, regulators, policy makers and even big energy consumers is needed to ensure that that bottleneck is avoided.
I’m Paul Schuster – and this has been your eight minutes.
