TL/DR –
The boom in artificial-intelligence data centers is driving up electricity demand in the U.S., which could increase by 25% by 2030. The article suggests that green-energy solutions, such as wind and solar power, are not scalable and require backup from dispatchable sources like coal, natural gas, and nuclear power. The author proposes that the U.S. should reform electricity regulation, end renewable subsidies, reduce permitting red tape and allow a nuclear renaissance to meet increasing demand, warning of higher prices and more blackouts if the current path continues.
As the U.S. experiences a surge in power consumption, primarily driven by artificial-intelligence data centers, electricity rates are on the rise nationwide. The demand, projected to increase by 25% by 2030, should ordinarily spark a construction boom in reliable and affordable power sources. However, limitations on generation capacity have prevented this from happening.
While proponents of renewable energy have highlighted the widespread adoption of subsidized solar power, this model is not readily scalable. The intermittent nature of wind and solar power necessitates back-up from dispatchable sources that can be adjusted according to need. Furthermore, utility batteries also have their limitations, as most need to be recharged after a few hours of use. With the U.S. shutting down approximately 10 gigawatts of dispatchable power generation — coal, natural gas, and nuclear — in 2024, meeting the growing demand has become a challenge.
The Challenges of Renewable Energy Adoption
The large-scale implementation of solar and wind energy has hidden costs and undermines investment in reliable power sources. Inflation Reduction Act’s subsidies intermittently force dispatchable power sources offline, making cost recoupment nearly impossible. As a result, most new energy project proposals are now predominantly solar, despite grid operators struggling with existing solar capacity. The One Big Beautiful Bill Act will reduce green-energy subsidies after 2028, but until then, these subsidies will remain, bolstering the power of the renewable energy lobby.
State renewable-portfolio standards, which mandate a certain percentage of electricity to be sourced from renewables by a specified date, further complicate matters. States with strict renewable-portfolio standards have electricity costs nearly three times higher than those without any such standards. These subsidies and mandates are especially disadvantageous for multistate grid operators, who are required to purchase power in bulk from the lowest bidder, irrespective of reliability.
Permitting and Environmental Review Hurdles
The U.S. also faces considerable challenges in the area of permitting and environmental review. The red tape results in long delays, inflated costs, and a slower response to new demand in comparison to other industrial economies.
Nuclear power could offer a long-term solution to meet the rising demand. Despite being expensive to construct, nuclear plants are economical to operate and could form the backbone of a low-cost, low carbon emission grid. However, stringent regulations make it virtually impossible to permit these nuclear plants.
Some argue that the delay in constructing new natural-gas plants is due to a backlog in manufacturing natural-gas-fired turbines, with wait times now extending for three or more years. These delays are largely attributed to unfavorable regulations, such as President Biden’s power-plant rule, which targeted natural-gas plants. However, Mitsubishi’s recent announcement of plans to double turbine production in the next two years indicates an easing of the bottleneck under President Trump.
The Impact on Grid Operators
PJM, the largest power grid operator in the U.S., recently suggested meeting the escalating demand by rationing electricity supply. Under this proposal, companies seeking connection to the grid would have to pay premium capacity prices or agree to close during peak demand hours. This proposal, which was later withdrawn due to significant opposition, could have disproportionately favored companies capable of building their own power plants and exacerbated power shortages.
While the U.S. grapples with power supply issues, China, a major competitor in AI development, is managing to reduce electricity costs amidst its own AI data center boom. The country is rapidly constructing coal plants, with nearly 100 gigawatts of coal capacity added last year — enough to power more than half of American homes.
The solution to the U.S. power crisis could lie in allowing market responses to price signals by swiftly expanding supply. This would require eliminating renewable energy subsidies, reforming electricity regulation, cutting permitting red tape, and promoting a nuclear renaissance. This approach could potentially lead to the cheapest and most reliable electricity globally. If not, Americans could be faced with higher power costs and increased blackouts, pushing the AI revolution to seek more reliable power sources abroad.
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