The transition towards electrifying everything, from vehicles and buildings to industrial processes, is a necessary step in the transition to a more affordable, secure, and clean energy future. However, this shift brings significant challenges for the U.S. energy grid, necessitating a paradigm shift in how we generate, distribute, and manage electricity. Businesses must understand the current energy landscape, including grid instability, to successfully navigate the related risks and opportunities.
Why is the U.S. electrical load growing?
For the last 20 years, energy consumption growth has been relatively flat thanks to technological and efficiency advancements, the offshoring of energy-intensive industries, and many businesses and communities transitioning to onsite energy sources. However, with the move to electrify, this trajectory is radically changing. According to Federal Energy Regulatory Commission (FERC) data, the electrical load growth is expected to increase 81% more than prior analysis expected. Previously, grid planners nationwide expected growth to be around 2.6%—now, based on new modeling, it is expected to grow at a whopping 4.7% over the next five years.
Multiple factors are contributing to this profound remodeling of the energy demand:
Reshoring of Manufacturing
One key factor is the reshoring of energy-intensive manufacturing facilities to the U.S., which is spurred on, in part, by supply chain pressure, geopolitical tension, and favorable government industrial policies. In 2023, the construction of manufacturing facilities grew 62% year over year.
Rise of AI and Data Centers
Another contributing factor is the rise of Artificial Intelligence and the increasing demand for data processing. According to Open AI, large language models (LLMs) are doubling their energy consumption every 3.4 months—consumption increased 300,000 times between 2012-2018 —much faster than the historical rate of computing growth defined by Moore’s Law. In 2022, U.S. data centers, which account for 40% of the global market consumed roughly 17 gigawatts (GWs) of electricity and the consumption is expected to nearly double to 35 GWs by 2030.
Household and Transporation Electrification
The U.S. plans to electrify massive portions of the transportation sector as fleets and individuals transition to electric vehicles. In California, Governor Newsom passed an executive order banning new gasoline-powered vehicles by 2035. At the same time, more households are phasing out gas and oil heating in favor of more efficient, electric heat pumps for heating and cooling. This transition will not only significantly add to load growth but also shift demand peaks in some regions seasonally and increase demand during severe weather.
What does increasing energy load growth mean for the U.S. grid?
Ensuring sufficient grid capacity to meet increasing electrical demand continues to be a growing concern for most utilities. For example, California Independent System Operator (CAISO), today is about a 50-gigawatt bulk power system. By 2025, CAISO needs to expand that to ~120 gigawatts of clean power, and based on Senate Bill 100 signed into law in 2018, 100% of electric retail sales to customers need to be from renewable energy. This means putting on seven gigawatts (enough to power roughly 5 million homes) a year for the next 20 years.
In addition to capacity concerns, grid operators must contend with the impacts on transmission, tying into local grids and creating the Western interconnect, which is time-intensive. It typically takes seven to 10 years to develop a new transmission line. For business customers, this translates into issues of where and when interconnection to the grid can take place, and sometimes interconnection can be put off by the utility for years. Overall, grid operators face challenges to both facilitate growth and also make sure that the grid operates correctly.
One significant factor impacting operability is the age of grid infrastructure. The Department of Energy found the average age of large power transformers, which handle 90% of electricity flow in the U.S. to be more than 40 years old. Yet, when a transformer is operated under the American National Standards Institute or the Institute of Electrical and Electronics Engineers, under basic loading conditions the normal life expectancy of these large power transformers is only 20 to 30 years. The result is that transformers are failing and will continue to fail at a more rapid rate, presenting significant risks to grid operation.
How are C&I businesses impacted by electrification and demands on the grid?
Due to the ramping energy needs, and the aging grid, more and more money has been spent on maintaining, managing, and investing in new infrastructure. A recent report from Black & Veatch outlines the direct economic impact of bringing new energy generation online, showing every five megawatts brought online requires installing new circuits, bringing up to 10 megawatts online requires new transformer banks, and for 20 megawatts or more new substations are needed. These are not insignificant costs—a new substation costs $9 million or more, while new circuits and transformers anywhere from a couple hundred thousand to many millions of dollars.
All of these costs are passed on to both business and individual energy consumers. Utility rates across the country are escalating. Take for example the recent news from Southern California, San Diego Gas & Electric utility just passed on the dubious title of ‘most expensive utility in the country’ to Pacific Gas and Electric.
Compounding the growing costs, businesses must also contend with the risk of grid failure. Without power, businesses do not operate. It is critical for business leaders to manage the risk of outages and have a plan in place to ensure business continuity.
How can C&I businesses successfully ensure power resiliency and continuity?
To address growing energy challenges and ensure access to the necessary capacity, businesses can adopt several strategies:
- Reduce Energy Load: Implementing energy efficiency measures can significantly reduce electricity consumption. This not only lowers operating costs but also eases the demand on the grid, making it more manageable to integrate new electrified processes.
- Assess and Deploy Onsite Energy Solutions: Onsite renewable energy generation, such as solar photovoltaics, can provide businesses with a more sustainable and resilient energy supply. By generating their own electricity, businesses can take sovereignty control over key operations, lock in energy costs, and lessen their dependence on the grid while reducing their carbon footprint.
- Engage with Utility Providers Early: Having conversations with utility providers early and often is crucial. By understanding future energy needs and working collaboratively with utilities, businesses can ensure that the necessary grid upgrades and capacity expansions are planned and executed in time to meet their energy load growth.
To hear our conversation on this topic, check out Episode 27 of VECKTA’s Renewable Rides podcast here.