Growing Demand For Electricity Is Upending The Utility Industry

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“Electrify everything” has been the rallying cry from clean energy advocates like Mark Z. Jacobson and Tony Seba for years. That has led some to question whether there would be enough electricity available to actually power everything, but the conventional wisdom is that the newest electric devices — especially heat pumps, LED lighting, and induction stoves — are so efficient that they will not require extensive and expensive upgrades to the electrical grid or major new sources of electricity in order to keep up with demand. In addition, demand response strategies will allow utility companies to manage electric hot water heaters, heat pumps, and EV charging to keep the grid from being overburdened.

Meanwhile, new technologies like the “magic ball” from Heimdall or new transmission wires that can handle heavier loads promise the existing grid can do more without building new transmission lines. In fact, reconductoring could triple or quadruple grid capacity without building any new lines at all.

But the utility industry is finding itself in a bind, one that it did not anticipate, thanks to four factors:

1. The Inflation Reduction Act is bringing a tidal wave of new industries to the US and providing new jobs, mostly in clean tech.
2. New data centers that depend on large amounts of electricity are under construction all across America.
3. The use of artificial intelligence has increased dramatically in the past two years, consuming vast amounts of electricity.
4. Crypto mining is expanding and is a voracious user of electricity.

Record High Demand

The Washington Post reports that in Georgia, industrial demand for electricity is surging to record highs. “When you look at the numbers, it is staggering,” said Jason Shaw, chairman of the Georgia Public Service Commission. “It makes you scratch your head and wonder how we ended up in this situation. How were the projections that far off? This has created a challenge like we have never seen before.” Georgia Power recently left regulators stunned when it revealed how wildly inaccurate its projections have been, primarily because of the unexpected demand for electricity from data centers.

Arizona Public Service, the largest utility in that state, is also struggling to keep up, projecting it will be out of transmission capacity before the end of the decade absent major upgrades. Northern Virginia needs the equivalent of several large nuclear power plants to serve all the new data centers planned and under construction. Texas, where electricity shortages are already routine on hot summer days, faces the same dilemma.

In the past, companies tried to site their data centers in areas with major internet infrastructure, a large pool of tech talent, and attractive government incentives. But these locations are getting tapped out, which has changed things dramatically. Communities that once had little connection to the computing industry now find themselves in the middle of a land rush, with data center developers flooding their markets with requests for grid hookups.

Utility projections for the amount of power they will need over the next five years have nearly doubled and are expected to grow, according to a review of regulatory filings by the research firm Grid Strategies. It warns that “there are real risks some regions may miss out on economic development opportunities because the grid can’t keep up.”

Data Centers & Electricity

The 2,700 data centers in the US used more than 4% of the nation’s s total electricity in 2022, according to the International Energy Agency. Its projections show that by 2026, they will consume 6%. Industry forecasts show the centers eating up a larger and larger share of the electricity available in the US in the years that follow, even as demand from residential and smaller commercial facilities stays relatively flat thanks to steadily increasing efficiencies in appliances and heating and cooling systems.

Officials in Columbus, Altoona, and Fort Wayne are being aggressively courted by data center developers. But power supply in some of these second choice markets is running low according to JLL, a commercial real estate firm that serves the tech industry. “Across the board, we are seeing power companies say, ‘We don’t know if we can handle this; we have to audit our system; we’ve never dealt with this kind of influx before,’” said Andy Cvengros, managing director of data center markets at JLL. “Everyone is now chasing power. They are willing to look everywhere for it.”

Another major factor behind the skyrocketing demand for electricity is the acceleration in the use of artificial intelligence. AI is driving the construction of large warehouses filled with computing infrastructure that require exponentially more power than traditional data centers. AI is also part of a huge scale-up of cloud computing. Tech firms like Amazon, Apple, Google, Meta, and Microsoft are scouring the nation for sites for new data centers, and many lesser-known firms are also on the hunt. Some suggest they would do well to install solar panels on all their rooftops, parking lots, and walkways to take advantage of the free sunshine that falls on their properties every day.

The proliferation of crypto mining, in which currencies like bitcoin are transacted and minted, is also driving data center growth and putting new pressures on an overburdened grid. Bottlenecks are mounting, leaving both new generators of energy, particularly clean energy, and large consumers facing growing wait times for hookups.

The industrial policies put in place by the Biden administration are working. They are luring companies to build factories in the United States at a pace not seen in decades. That includes manufacturers of clean tech items such as solar panels and electric car batteries who have been enticed by lucrative federal incentives. Companies have announced plans to build or expand more than 155 factories in the US during the first half of the Biden administration, according to the Electric Power Research Institute. Not since the early 1990s have factories accounted for such a large share of US construction spending, it says.

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The Search For Clean Energy

Surging demand for electricity is leading to some strange happenings. Data centers and other heavy users of electricity are considering the use of industrial-scale fuel cells. CleanTechnica readers will see that as a red flag, as the hydrogen to power them will come mostly from reforming natural gas, which is hardly emissions-free.

Microsoft and Google are among the companies hoping that energy intensive industrial operations can ultimately be powered by small onsite nuclear plants. Microsoft has been putting AI to work trying to streamline the process of getting nuclear power plants approved and has signed an agreement to buy power from a company developing fusion power. But those efforts are coloring way outside the lines. The type of nuclear plants envisioned are not yet even operational in the United States and fusion power does not yet exist.

Planners are increasingly concerned that the grid won’t be green enough or powerful enough to meet future demands. Already, soaring power consumption is delaying coal plant closures in Kansas, Nebraska, Wisconsin, and South Carolina. “These problems are not going to go away,” said Michael Ortiz, CEO of Layer 9 Data Centers, a US company that is looking to avoid the logjam in America by building in Mexico. “Data centers are going to have to become more efficient, and we need to be using more clean sources of efficient energy, like nuclear.” (Most readers will dispute the notion that nuclear power is a source of clean energy. It is also frightfully expensive compared to solar and wind power.)

Who Is Going To Pay For All This?

Not surprisingly, the question of who is going to pay for all this is on the minds of plenty of people, both in the utility industry and in governments. The increase in demand has Georgia officials rethinking the state’s policy of offering incentives to lure computing operations, which generate few jobs but can boost community budgets through the substantial property taxes they pay. The top leaders of Georgia’s House and Senate are calling for a pause in data center incentives.

Georgia regulators, meanwhile, are exploring how to protect ratepayers while ensuring there is enough power to meet the needs of the state’s highly prized new corporate citizens — clean technology companies. Factories supplying the electric vehicle and green energy markets have been rushing to locate in Georgia in large part because of promises about cheap, reliable electricity.

When the data center industry began looking for new hubs, “Atlanta was like, ‘Bring it on,’” Pat Lynch, who leads the Data Center Solutions team at real estate giant CBRE, told the Washington Post. “Now Georgia Power is warning of limitations. Utility shortages in the face of these data center demands are happening in almost every market.”

Officials in Maryland are opposing a $5.2 billion plan that would send electricity to huge data centers in Virginia. The Maryland Office of People’s Counsel, a government agency that advocates for ratepayers, called grid operator PJM’s plan “fundamentally unfair,” arguing it could leave Maryland utility customers paying for power transmission to data centers that Virginia aggressively courted and is leveraging for a windfall in tax revenue. In other words, if Virginia wants that electricity, let Virginia pay the cost of it. That doesn’t seem unreasonable. Tensions over who gets power from the grid and how it gets to them are only going to intensify as the supply becomes scarcer, the Washington Post says.

In Texas, a dramatic increase in data centers for crypto mining is touching off a debate over whether they are a costly drain on an overtaxed grid. An analysis by the consulting firm Wood Mackenzie found that the energy needed by crypto operations that plan to set up shop in that state would suck up a quarter of all the electricity used in Texas during times of peak demand.

Unlike data centers operated by big tech companies such as Google and Meta, crypto miners generally don’t build renewable energy projects to supply themselves with clean energy. As fantastical as it may seem, some states have actually passed laws to protect access to the access to the huge amounts of power crypto mining requires. We can be pretty sure some major campaign contributions were involved in the passage of such idiotic laws.

Ben Hertz-Shargel, the author of the Wood Mackenzie analysis, says the drain on the grid by crypto mining threatens to restrict the ability of Texas to power other industrial operations that could drive innovation and economic growth. That’s not idle speculation. A group of scientists led by Princeton University professor Jesse Jenkins warned recently that the United States risks losing out on 80% of the potential emission reductions made possible by the Inflation Reduction Act if the pace of transmission construction does not pick up dramatically.

The situation is sparking battles across the nation over who will pay for new power supplies, with regulators worrying that residential ratepayers could be stuck with the bill for costly upgrades. It also threatens to stifle the transition to cleaner energy, as utility executives lobby to delay the retirement of fossil fuel plants and bring more online.

The power crunch imperils their ability to supply the energy that will be needed to charge electric cars and household appliances in order to meet state and federal climate goals. “Lawmakers need to think about this,” Hertz-Shargel said of allocating an increasingly limited supply of power. “There is a risk that the strategic industries they want in their states are going to have a challenging time setting up in those places.”

The Takeaway

Scarcity always leads to less than ideal results. Wasting electricity on crypto mining is stupid. If crypto operations want electricity, let them figure out how to generate it themselves without burdening residential consumers or industrial enterprises who will put that electricity to good use making products and employing people.

As one person who commented on the Washington Post story said, “This is a perfect example of the economic concept of externalities. All of these power users, especially the data center companies and those who rely on them, simply assume power is available without factoring in the costs to society of their consumption. Instead, the cost of building the capacity to satisfy their demand should be factored into their cost calculations. That would change the economics of the industry dramatically — and make those calculations grounded in reality instead of a fantasy of unlimited capacity.” To which we say, “Amen.”