Electric Demand Growth and a New Strategic Lens

The Power Line is a newsletter series that reviews key stories in the electric power sector—ranging from grid reliability, transmission issues, and emergent technology and business models. The Power Line will highlight the connections and relevance between the sector’s technical, local, and often esoteric stories to high-level public policy conversations on climate and energy taking place in Washington, D.C.

The Energy Security and Climate Change program recently hosted a conversation with Rob Gramlich, president of Grid Strategies, and Brian Janous, former VP of Energy for Microsoft and founder of Cloverleaf Infrastructure, on electric demand growth. The takeaway is that this rapidly developing issue is one of national strategic importance.

Electric demand growth is a simple enough phenomenon: as a country the United States is using more electricity. Three converging economic trends are driving a sudden shift from decades of near-zero growth onto a new faster growth trajectory. First, the boom in artificial intelligence (AI) has unleashed vast new investment in data centers. Second, a new era of federal industrial policy is inducing new investment across many industrial and manufacturing sectors. And third is the slowly accelerating effects of mass electrification, most notably in transport, but also in residential and commercial heating, and industrial heat applications. A new era of policymaking and investment in the electric power sector is needed to enable rather than undermine these economic ambitions.

Historic Context

The historic arc of electric power consumption is crucial to understanding the current moment. The postwar economic boom was powered by and drove a similar boom in electric power consumption; in 1950 the United States consumed 300 billion kilowatt-hours (kWhs) of electricity, Twenty years later in 1970 that figure stood at 1.39 trillion kWhs, a well over tripling of the sector. In the 1970s, that growth rate shifted downwards, twenty years later in 1990 annual consumption stood at 2.83 trillion kWhs; the system had merely doubled.

Remote Visualization

Most of our largest class of grid infrastructure, the high-voltage transmission lines that can stretch hundreds of miles across state lines, is inherited from this era. System planners anticipated sustained electric demand growth and accordingly envisioned and executed on large-scale system expanding investments. Projects like the Pacific Intertie, the American Electric Power 765 kilovolt (kV) network stretching across the Midwest, or the TVA 500 kV network connecting much of the Southeast date back to this era. Today these assets provide invaluable services to grid, allowing for least cost generation to serve load across wide balancing regions and improving reliability by moving power long distances to where operating margins are tightest. These assets represent a class of strategic investments which have long since paid for themselves and now widely spill positive externalities to ratepayers across state and utility service territory lines.

Since the turn of the century, electric demand growth has averaged only 1 percent a year. This fact has defined the policymaking, regulatory, and investment paradigm since. In this environment, long-term strategic investment is hard to justify. Instead, the sector has been organized to operate at maximum cost efficiency, minimizing surplus grid and generation capacity and transferring the gains to consumers in the form of lower rates.

Load Growth, Investment, and Rates

Today many utilities are struggling to serve the surge of new industrial and commercial sites seeking connection to the grid. Decades of strategic investment in the 50s, 60s, and 70s created a system with spare capacity in which electric demand could slowly grow in the several ensuing decades without large scale system-transforming investment. Now that spare capacity is rapidly diminishing, if not already gone.

The only way forward is through expanded investment but in the short-term investment comes at increased cost to the ratepayer. This is the context for contentious battles at state public utility commissions in states such as Georgia and South Carolina, though across the nation utilities are submitting rate request at record levels. Policymakers are in a difficult position—without investment, the system cannot grow, and the new loads cannot be served, and the economic expansion and opportunities lost. On the other hand, the possibility of sustained load growth represents a real opportunity because it expands the volume of electricity consumption over which the cost of investment is spread. Investments pay for themselves far more rapidly in a growing system versus a stagnant system.

The overarching challenge then for policymakers and regulators at all levels is to ensure sectoral investment is undertaken in a way that optimizes the ratepayer value per dollar of ratepayer investment. Though investment in generation capacity is undoubtedly necessary, investment in transmission, demand response technology, and grid-enhancing technologies can improve system efficiency and deliver significant value to the ratepayer. Furthermore, not all transmission system investment is created equal; Piecemeal, reactive, localized investments in grid infrastructure is an inefficient use of ratepayer dollars relative to long-term large-scale system expanding infrastructure of the kind undertaken by generation’s past.

Local Debates, National Challenge

The electric power sector is fundamentally a means to broader economic and productive ends. In the current moment, with the United States undertaking a broadly bipartisan effort to reignite industrial and manufacturing prowess across a wide range of sectors and technologies, these ends have elevated strategic significance. Commerce Secretary Gina Raimondo recently characterized the effort to secure leadership on cutting edge semiconductor manufacturing and the AI technology they enable as akin to the space race. It is exactly these types of strategic objectives which will suffer if the nationwide electric demand growth is undermined by underinvestment or malinvestment. Though the sector will remain largely shaped by localized planning and investment decisions, federal policy has an important role to play in shaping the landscape in a way favorable to the ratepayers and national strategic objectives.

Cy McGeady is a fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C. 

Cy McGeady
Fellow, Energy Security and Climate Change Program