Looming Electricity Supply Crunch Has Experts Sounding the Alarm

Mark Green
Posted May 23, 2024

America has an approaching electricity crunch – driven by skyrocketing baseload demand from data centers, artificial intelligence (AI) and other electrification needs. As we’ve pointed out, this is at odds with EPA’s new power plant rule that makes it harder and more expensive to bring new natural gas-fueled generation online.

Worse yet, it could be a train wreck in the making.

The 2024 Summer Reliability Assessment from the North American Electric Reliability Corporation (NERC) looks like a harbinger of a collision to come. NERC warns that big parts of the U.S. and Canadian electric grids could run into supply shortfalls this summer. Seven areas – including portions of Texas, California, New England and the Midwest – face an “elevated risk” of shortages, based on analysis that includes forecasts for high demand, historically high outage rates, and low wind or solar energy output.

Meanwhile, witnesses at a U.S. Senate Energy and Natural Resources Committee hearing described the longer-term baseload demand risk and urged Washington to respond with policies to address the looming demand/supply imbalance – such as permitting reform to remove obstacles to needed infrastructure construction, including renewables; as well as rethinking EPA’s power plant rule that would hinder new natural gas-fueled generation plants.

That last part is critical, because natural gas is America’s leading fuel for electricity generation (43% in 2023, about double the generation fueled by renewables, 21.4%).

Witnesses described the baseload demand situation in clear terms. Every $1 billion spent on data centers leads to more than $600 million in electricity purchases over an operating decade, said Mark Mills, executive director of the National Center for Energy Analytics. Mills said with the addition of AI-enabled hardware accelerating the buildout of data centers and energy use, a four-fold jump in energy use per dollar of capital deployed is possible.

That would mean more than $2 trillion in energy purchases over a decade for every $1 billion spent on new AI-infused data centers.

Mills:

“The AI revolution is on track to add more net new energy demand annually than will manufacturing or the auto industry, and far more than [electric vehicles]. And this says nothing about the spillover effect, the point of using AI in the first place, which is to accelerate economic growth and competitiveness. The arrival of a new way to boost the economy illustrates the long-standing correlation, a veritable iron-law, that links economic growth and rising energy use, especially electricity. … The nation’s electric sector will need full access to all options to ensure enough electricity is produced reliably and at prices American businesses -- and ultimately the public -- can afford.”

Mills and other witnesses cautioned that the baseload needs of data centers cannot be “managed” like power to other uses, such as homes and other businesses, by asking them to cut back usage. Data centers and other baseload-dependent users can suffer severe economic harm by the slightest blip in power availability.

More broadly, the grid needs baseload generation fueled by sources that do not depend on the sun or wind. Asked about the economic consequences if federal and state regulators effectively prohibit using natural gas and coal to meet growing electricity demand, Mills said U.S. economic growth would be stifled.

“You can’t run a business if you can’t keep the lights on,” said Scott Gatzemeier of Micron Technology.

A couple of other bits of noteworthy testimony from the hearing:

Benjamin G.S. Fowke III, American Electric Power Company

“I am a big proponent of renewable energy. I think it's part of the solution, and it's part of how we address climate change and the risk of it. The reality is, the more renewable generation you put on the grid, at some point that grid reaches a saturation point, and then the value of that renewable energy diminishes and the integration cost increases. And it's the reality that the big grid that we're all part of needs 24-7 spinning, mass dispatchable generation.”

Karen Onaran of the Electricity Consumers Resource Council:

“It is imperative that we harness, rather than reject, the energy solutions that are abundant in this country. … While we all aim to be good stewards of our environment and precious natural resources, overly aggressive rules from the Environmental Protection Agency exacerbate an already precarious and taxed energy system. Any transition to a cleaner economy must be done at a pace and scale that ensures we keep the lights on at affordable rates.”