It’s the Energy Demand, Stupid

After many years of relatively flat demand, the U.S. power system is witnessing significant growth. Yet most of the press around an energy transition is around net-zero carbon energy supply alternatives like wind and solar. Trillions of dollars have gone into that challenges but are we further ahead? Are we focusing on the wrong side of the supply-demand equation? Almost from our initial episode in the USC ECET Future of Energy podcast series, Dr. Don Paul told us it was about energy demand and many of our other guests have repeated this same message. Are we listening?

There is no doubt that the AI revolution is a big part of the new paradigm change and excitement, but not all energy sources are equally suited to the task and timelines (see our episode with Dr. Benham Jafapour S3E5). With policy pushing for more supply to be electric versus thermal (like coal and natural gas) there is also growth in EV charging stations and for home heat pump demand for heating and cooling needs. But electricity is only about 25% of total energy demand. For the full picture on energy you need to consider transportation (non EVs), home and office/factory needs for lighting (non-electric) and industrial processes like the making of steel, cement, fertilizers, and plastics.

Data centers are the backbone of the digital economy and are capturing most of the headlines. Their power needs cannot be met through wishful thinking. Nvidia with the new power-hungry Blackwell chip tailored for AI computing, the bar has been raised. While the long-term decarbonization of the grid is essential, the immediate reality demands pragmatic solutions. In the short term, in the United States, that choice is likely to be natural gas turbines as the way to power the next generation of compute infrastructure.

Is AI Worthy of Cabinet? (from a recent Geoffrey Cann, DOPE LinkedIn post)

“Canada has created a brand-new Cabinet position: Minister of Artificial Intelligence and Digital Innovation. The move signals just how impactful and transformative Ottawa believes AI will be. The stakes are clearly high. But here’s the thing. Anyone anywhere can put up a warehouse and call it a data center. Energy is the true bottleneck.

Training language models, running queries, and cooling data centers all require megawatts of electricity—far more than typical computing. A search on ChatGPT uses 10 times as much energy as a Google Search. To win at AI, countries need to rethink how they deliver energy, or risk having AI drive up power prices for everyone. It means smarter grids, battery storage, co-generation units, co-location strategies.”  

These observations lead one to think more about the grid than the solar and wind farms and shutting down coal-fired and nuclear plants. If it was just about greenhouse emissions, why isn’t everyone behind nuclear power? (see our episode by Dr. Naj Meshkati S2E12) We have talked a lot about the complexities of running a modern power grid from the Duck Curve fundamentals of a growing percentage of intermittent sources to the need to modernize the grid, build a lot more storage, use the data from smart meters to manage the grid in real time and not forget cybersecurity.  (see our episodes on managing a grid from SoCalEd S2E5 and Colorado Springs Utilities S2E4) It is not just about how many Gigawatts or ExaJoules you have, it is about resilience, availability, and affordability. Just ask the REN, the utility provider for Spain and Portugal about those lessons (as well as grid failures in systems powered by thermal sources (ERCOT in Winter Storm Uri, power blackout to London’s Heathrow airport, PG&E Moss Landing fire at a battery storage facility and a growing list of others grid reliability incidents).

What are we missing?

If it was just about emissions then we should be making progress. The oil and natural gas industry is making progress. (see episode with Dr. Kathy Woody S2E6) According to OGCI: OGCI and its member companies have demonstrated measurable results since 2017, including: 

·        Upstream methane emissions down by 55% 

·        Routine flaring down by 53% 

·        Upstream carbon intensity of operated oil and gas assets down by 21% 

·        Investment in low-carbon technologies ~$100 billion

But from a recent NCEA (National Center for Energy Analytics) report

·        U.S. needs $1.5–$2T in new power generation—and up to $1T more in transmission

·        Critical mineral deficits are massive—$250B in copper investment needed alone. We are 10-15 years behind China in critical mineral refining.

·        Interest rates are crushing long-duration energy projects (for example offshore wind)

·        “Strategic ambiguity” is how institutions manage their green/brown messaging

·        It's a moral failure to block energy access for a billion people in the Global South (Just Transition, see episodes S2E13, 14 and 15).

The takeaway? Rising energy demand doesn’t guarantee capital flow. (see cost of going green S2 E9 and S3E25 and 26) Political uncertainty may derail the very infrastructure the digital era requires. And those are just the stories in the developed world. Dr. Scott Tinker, Dr. Mark Mills and Bjorn Lomberg and others, remind us that there are seven billion people without the luxury of these grids and have their own priorities. Energy demand drives growing charcoal use in southern Africa, growing coal-fired power for industrial sources in China and India. The new Energy Corps program about 50, 50, 50 bears paying attention to. (see Energy Corps website https://energycorps.com/)

The message that economic drivers come before environmental ones is a key insight in my humble opinion. We have been approaching the energy transition not only from a supply side perspective but from a developed world (European and North American) one. That is only the top billion people on the planet. What about our fellow travelers on this planet. The reality is that there is little evidence of an energy transition, only growing energy needs on a complex and global scale challenge that if you go by growing CO2 emissions, one that we are losing. We all prefer simple stories and simple solutions. This is a big hairy, complex one. Buckle your intellectual seat belts, this one gets challenging.

"It's the economy, stupid" is a catchphrase that means that the primary concern of American voters is the state of the American economy, and how the economy affects their personal finances. The phrase was coined by James Carville in 1992 as "The economy, stupid". It is often quoted from a televised quip by Carville as "It's the economy, stupid". Carville was a strategist in Bill Clinton's successful campaign in the 1992 U.S. presidential election against incumbent George H. W. Bush. (Wikipedia)

Maybe the lesson here is that “It’s the energy (and water) demand, stupid” that should be the top focus. We are not going to solve a problem without really understanding it.