Are we ready for a major increase in electricity demand?

Every now and then a new set of lobbyists rises up to tell us that the electric industry needs to do something because the expected demand from X will overwhelm the utilities. In the early days of the personal computer, the electrical industry sponsored a study that showed that PCs would almost eat electricity. Everyone got excited until someone realized that the researcher had calculated the consumption incorrectly on the computer. We recently had the crypto crisis. Now it’s the data centers that will consume all our electricity. These estimates, even if correct, suffer from a flaw. They assume that there is no compensatory reduction in demand from consumers adversely affected by the new entrant. (Does more crypto use reduce electricity consumption at ATMs, for example?) We should note that the recent concern that data centers will strain the US power grid comes with a PR push to boost energy nuclear and a warning from the copper industry. that demand for the red metal will exceed mining capacity.

Not that we disagree about the prospects for a revival in electricity demand. A few years ago, we argued that the percentage growth in electricity demand would triple and that the industry was not ready. So, with the recent commotion (and the doubling of the growth rate in the last three years), we decided to do a simplified analysis (no econometric model here). Let’s make 2024 the base year. Next, use some rough estimates for demand growth over the next decade. Data centers will consume 9% of electricity, according to news reports. Electric vehicles would consume 30% of annual electricity production once the car fleet is 100% electric. Well, it won’t reach 100% for a long time at the current rate of sales. So let’s assume 20% penetration by 2034, adding 6% to demand. Also assume that the industry’s normal growth rate (assuming normal economic growth) is about 1% per year (or 10% for the total period). Finally, warmer weather and conversions from natural gas to electric heat pumps will increase the air conditioning load by about 5%. All this adds up to a 30% increase in sales over 10 years. Doesn’t that sound spectacular? Well, this century annual sales growth has been 0-1% per year. Relatively speaking, this is a big change and, more importantly, involves significant capital expenditure to meet this demand.

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FIGURE 1: DEMAND FOR ELECTRICITY 2024-2034 (2024=100)

Next question. Where will the electricity come from, with the US government (EIA) forecasting 1% growth, not the 3% we think. In addition, the industry will need to replace some of those old coal-fired power plants. No doubt it will argue that it cannot run a reliable network unless it keeps the base stations on gas, and it really needs to add significantly to the gas fleet. We believe the industry will have its say in the failure of decarbonisation for no other reason than that renewable producers will not be able to get enough installations online to help meet demand. After all, he has to wait for the transmission line. In some places, it’s like waiting for Godot. Then there is the hope of refurbishing nuclear bombs, such as the factory formerly known as Three Mile Island. We assume all mothballed plants come back on line (probably wishful thinking). In general, at least on paper, there are a lot of power plants in the household pipeline. Not an excess, but enough. Figure 2 shows our generation mix estimates for 2024 and 2034. If we’re right, natural gas remains in the picture and plays a bigger role as it replaces coal as a utility boiler fuel.

FIGURE 2: GENERATION BY FUEL (2024-2034) (2024=100)

There is something bizarre about the idea that the US electricity industry, the preeminent vehicle we have for decarbonizing our economy, now produces more than half of its output by burning fossil fuels, and in ten years will still produce half of its output by burning fossil fuels. . Is this progress?

By Leonard S. Hyman and William I. Tilles for Oilprice.com

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