Is a new energy crisis looming?

Some think so. I’m not sure I’d go that far. However, given that we remain focused on the wrong things, the trends are alarming.

According to filings made to the Federal Energy Regulatory Commission (FERC) and compiled by Grid Strategies, we will need the equivalent of 34 new nuclear power plants or 38 gigawatts of new generation over the next five years. The primary drivers: energy hogs including data centers, cryptocurrency mining, and pot farms. And oh yes, the transition to electrify everything.

The issue is twofold: electricity demand has been generally flat for decades. So unlike other industries, the utility industry is not accustomed to managing growth. Secondly, the incentive structure and primary objective of utilities (i.e. keeping the lights on) are inconsistent with innovation – a necessary element to manage rapid growth.

Given these characteristics, what is the natural response: utilities want to leverage what they know – power plants that run on fossil fuel.

And the problem is not isolated to the United States. The International Energy Agency (IEA) believes electricity demand for data centers and cryptocurrency could double by 2026.

Did the utility industry see this coming? Or more to the point, did they begin to formulate plans to handle increased energy demands? The short answer is no. As recently as 2022, published estimates were way off the mark.

Why?

Because utilities have been operating under the same set of assumptions for 30 years.

Has corrective action been taken?

The short answer: probably not. Imagine operating in a stable environment your entire career and suddenly the market goes haywire. How equipped would you be to handle the change?

Add to that a lack of data on exactly how much power these power hog industries will require, and I can see how some would call this a crisis. Except that there are two ready solutions to the problem: limit the proliferation of energy hog industries until a solid plan to power them can be developed. Or use fossil fuels.

Don’t get me wrong, neither is a good solution, but both could theoretically avert a crisis. That’s why I hesitate to use the term. It isn’t like power is going to go off in millions of homes. That would be a crisis. This is a massive problem with no clear acceptable solution. There’s a distinction.

FERC taking charge would be a good place to start. Except that means relying on the federal government to quickly devise a path forward. As I said, a problem with no clear acceptable solution.

#powergeneration #cryptocurrencymining #datacenters #marijuanaindustry #utilityindustry