The trade press is full of stories about rapid electricity demand growth virtually everywhere. Increasing populations in parts of the world, rising standards of living and a warming climate are frequently mentioned for the global south. In some developing countries the rise of manufacturing, increased use of the Internet, data centers and applications of artificial intelligence (AI) are among the drivers of demand growth. Electrification of road transport, space and water heating, cooking (preceding article) and so on are also contributing as are efforts to electrify easy to convert industrial applications.
The predictions vary by region, who is doing the modeling and what data and assumptions are used but generally agree that the trend is upward and higher than the recent past. That much is not in dispute. What is hotly debated is the potential impact of the demand growth on electricity prices that customers face.
According to one school of thought, increased demand – while requiring increased investments in generation, transmission and distribution – will result in lower prices for two primary reasons:
- First, much of the added generation in most parts of the world is likely to be supplied from renewable resources, which have zero fuel costs and are getting progressively cheaper with growing scale, government support and continued technological improvements; and
Second, since much of the electricity sector’s costs are fixed – primarily recovering investments for expanding and maintaining the expensive infrastructure – the unit costs of electricity delivered should decline with more throughput, all else being equal.
Another school of thought, more nuanced, accepts the above line of reasoning but points out – correctly – that the volume of electrons delivered through the network is not nearly as important as when and how it is delivered and to what end. And this makes things rather complicated.
It is easy to see why. If, for example, the increased demand is primarily from data centers, which do not vary a lot across the hours of the day or seasons of the year, then the volume increases but most likely not as much as it costs to serve it. In this case, per unit cost of electricity is likely to drop – of course there are many caveats.
On the other extreme is electric vehicle (EV) charging, already a significant load in places like California and parts of Europe and in China. In this case when the EVs are charged and at what voltage level will make a huge difference on electricity delivery network and prices. If the EVs are primarily charged from excess solar generation during the sunny hours of the day in California, for example, then the cost impact can be minimal since they will use cheap solar energy. Of course, even in this case, the delivery network will have to be upgraded and expanded to allow daytime charging at office buildings, in shopping centers and wherever people park their EVs during the day. And efforts are needed to discourage the EV owners from charging during the peak demand hours, usually in the early evening hours.
Other electrified loads such as heat pumps, electric water heaters and other appliances have similar impact on the infrastructure and therefore costs. If electric water heating, for example, can be programmed to take place when electricity is cheap, then it would have a beneficial impact even if it increases demand. Some of the nuances are further explained in the following article.
This article originally appeared in the July 2024 issue of EEnergy Informer, a monthly newsletter edited by Fereidoon Sioshansi who may be reached at fpsioshansi@aol.com”
