American public discourse has rather
suddenly become electric. A confluence of factors in technology, policy,
and economy has rendered energy availability and affordability a
pressing debate. Several trends have pushed these issues to the fore. On
one hand is the imperative of meeting growing energy demand at any
cost, driven in part by the intriguing prospects of AI. Another strain
of technologists wants to deploy new options for the electric system,
promising sundry benefits. One example is the arrival of cost-effective
batteries making electricity storage viable, which could potentially
lead to less need for expensive but infrequently used generation
capacity. Customers, especially residential ones, are deeply concerned
about rising bills. Swings in policy undermine long-term investment
incentives, with maximalist and divergent platforms pushed through by
narrow margins. Adding to the boil is the prevailing insistence that all
this and more must be done yesterday. Utilities and others who manage
the electricity grid are caught in the crossfire, trying to determine
how best to deliver a growing amount of reliable, affordable power.
Through it all, the common thread underlying each element is the infrastructure—generators, wires, transformers, and other gear—that
keep the lights on. Some advocate for their favorite kit or defame
their most loathed competitor, while many commentators hardly understand
the complicated machinery that comprises U.S. electric grids. Informed
and careful thinking is needed because today’s decisions have profound
and longevous effects. The deeper issue is simpler: while everyone
agrees that an electricity buildout is needed, everybody thinks somebody
else should pay for it.
The main forcing factor is load growth. For nearly fifteen years,
there was little aggregate growth in electricity demand, but now the
intermission is over and expectations of growing demand have returned.
To deliver that energy reliably, investments are needed across the
system in generation, transmission, and distribution. The problem is
sufficiently complex that a single solution, such as adding only
generation or transmission, is not viable. The fragmented nature of the
U.S. electric system complicates the problem. End users will ultimately
pay for those investments, but many avenues are possible and
cost-shifting is a key strategy for the interested parties.
Contextualizing the American Energy Buildup
Understanding how we got here is crucial for developing an
appropriate strategy to address today’s challenge. The grid has been
built and expanded over the course of many decades, matching the steady
growth in demand. During the twentieth century, utilities could
undertake ambitious, long-term projects and let customers grow into
them. Public utility commissions signed off on these plans, rolling the
cost of long-term investments into the rate base and charging customers
to recover the outlays. Then, for over a decade, the aggregate growth
stopped. After the Great Recession, aggregate electricity consumption in
the United States hardly changed. Underlying shifts were not uniform,
as some states never saw a stagnation in electricity consumption. Texas
and Florida stand out as states that have seen and supported continually
growing demand. More states, however, saw declines: California,
Illinois, Kentucky, and Missouri foremost among them.
The aggregate trend hides some important intensive changes. Since the
Great Recession, manufacturing became more energy efficient, with
output growing despite lower electricity use. That trend can continue as
profit-maximizing manufacturers seek to make the most efficient use of
costly energy inputs. Another part of the manufacturing story is a pivot
by the sector toward relatively inexpensive and abundant natural gas.
But these shifts have been made and are unlikely to continue. The
portions of the manufacturing sector that were convertible have largely
been accounted for, and those that remain have good reasons to resist
further fuel shifting.
In addition to manufacturing, there have been substantial efficiency
gains in other areas. One notable area is in lighting. Switching
illumination to more energy-efficient technologies like light-emitting
diodes (LEDs) has led to substantial reductions in the amount of energy
needed to provide the same level of illumination. Here, like the
manufacturing shift to natural gas, the conversions have already been
made, and one can expect few reductions in load growth from this
quarter. These shifts underscore the one-off nature of the period of
limited load growth that we experienced and are now realizing is over.
While the above gains managed to offset the effects of population and
economic growth, they will not reliably continue.
Over this period with limited sales growth, it should come as no
surprise that infrastructure investment has been weak. Two explanations
are immediately obvious. The first is that if the system is providing a
stable amount of final sales, there is little motivation to expand. The
second is that infrastructure is ultimately paid for by ratepayers,
whether directly by accumulated revenues or through financing dependent
on collateral from future sales. If sales are constant, there is no
scope to pay for expanding the system. Now, however, there is tremendous
momentum to expand the system, hence the present energy friction.
The current fear about energy infrastructure investment is that it
will increase system costs. It most certainly will. Only the
introduction of new, cheaper technologies can reduce the cost of
provision. It is heroic to presume that expanding the system with
currently available technologies is going to capture unrealized
economies of scale and lower costs for all users; that prescription
implies that our current system is massively inefficient. We will have
to incur substantial costs; the challenge is who will pay for the system upgrades.
In classic political fashion, the answer to that question has thus
far been “not me but thee.” Following the tradition of “users pay,” a
salient answer might see firms investing heavily in AI bearing the
lion’s share of the cost. Prominent firms like Google, Meta, Microsoft,
and OpenAI are seen as creating the load problem. Some of those firms
are historically valuable, so obviously, in the minds of many, they are
fattened calves to sacrifice. Never mind that AI may not play out along
the lines of the most optimistic projections, or that an ultimate
dominant player may not be today’s incumbent behemoth. Many data centers
have nothing at all to do with AI, providing a wide range of services
from web hosting or cloud computing to cryptocurrency mining. Most data
centers are relatively small, though the public imagination latches onto
the largest hyperscaled facilities.
This has been the basis of the Trump administration’s proposal to “bring generation with you.”1 The
notion that hyperscalers are going to supplant an entrenched industry
like electric utilities is rather heroic. Neither party wants that to
happen. If tech firms wanted to be in the electricity business, they’ve
had plenty of opportunity to opt into a capital-intensive and heavily
regulated, low-margin business. But they haven’t and probably won’t.
Hyperscalers want to buy energy and the reliability that the U.S. grid
delivers. By the same token, utilities look at the disruptive landscape
of technology and hail the importance of reliability.
Segments and Issues in the Current Energy Landscape
In a rare contemporary instance of grade deflation, the most recent
annual ASCE infrastructure assessment awarded a D+ to American energy
infrastructure.2 The
low grade is misleading, however, as it relies heavily on earlier
analyses geared toward policy aspirations for emissions reduction and
electric transitions within the transportation system. Now, in an
environment facing growing demand after an about-face in policy
priorities, the current U.S. energy infrastructure deserves a closer
look....
