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Can the US Grid Keep Up with the Demand for AI? · C-Suite Perspectives

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Steve Odland: Welcome to C-Suite Perspectives, a signature
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series by The Conference Board.
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I'm Steve Odland from The Conference Board and the host of this series.
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And in today's conversation, we're going to talk about an important and
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fast-changing subject: the issues around electricity demand, power prices,
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supply, and how it impacts the economy.
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Joining me today is Alex Heil, senior economist at The Conference Board's
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Economy, Strategy & Finance Center.
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Alex, welcome to the program.
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Alex Heil: Hello, Steve.
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Thanks for having me.
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Steve Odland: Alex, you and I have talked over time about all
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things related to power, the grid, electricity, and so forth.
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But this is such a fast-moving subject, there's new stuff going on here.
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But maybe you could start by just giving us a 30,000-foot view of where
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do we stand in the United States with the level of power capacity
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versus current and forecasted demand.
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Alex Heil: Yeah.
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Thanks, Steve.
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Yeah, and we have talked about this issue several times already, but
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there isn't a day that goes by that another new news article comes out
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that tries to capture a new angle.
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So just to set the scene here for our listeners, I think it's important
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to recognize that over the last couple decades or so, there have been
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several important inflection points.
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So the first one really was in 2007, the iPhone was introduced.
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People started using devices more and more, and there was real concern at
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the time that, in the US, electricity demand would just grow off the
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charts with all these computers, the data centers supporting some of the
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underlying processing and activity.
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This would all just completely overwhelm capacity.
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Interestingly, that's not what happened for the next almost 20
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years, until we're now in 2024, 2025.
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And the answer in the story there is really one of efficiency.
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There's efficiencies, not only light bulbs, but also devices
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have become more efficient.
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And as a result of that, electricity demand really
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flatlined for essentially 20 years.
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Now we're at the point where data centers are being constructed, artificial
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intelligence is really ramping up.
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What used to be a couple percentage points of electricity demand from
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AI data centers might go up to 5, 7, 9, 10 over the next decade or so.
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So at this point, I think analysts are very concerned that going forward
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now, this is going to be a real crush when it comes to the US grid's ability
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to support that increase in demand.
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Steve Odland: Yeah, and I think your background is really important
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and helpful, and of course, you referenced 2007, but there's
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never any starting point or endpoint to these kinds of things.
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It started before then with a lot of conservation—turn down your
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thermostats to a lower temperature.
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Alex Heil: Of course, yeah.
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Steve Odland: And then we went to compact fluorescent light bulbs, and
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then it evolved into LED light bulbs.
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So each step, and then all of the regulations around appliance
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energy consumption, including water, which is a different issue.
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But all of these things have contributed to a reduction in demand at the same
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time the economy is growing and growing into that supply that was freed up.
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And you've written about this.
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It's important for people to understand that because we've gotten complacent
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about increasing the supply and paying for that increase, essentially, because
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we've had this dividend of conservation.
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We're really towards the end of the easy, low-hanging fruit conservation.
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Alex Heil: I think it's important, and you make important points there.
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I think, basically what we've now seen over the last couple decades, we've seen
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the load overall stay relatively constant.
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And we started to switch, essentially, and alter the composition that
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makes up that supply side.
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So we had a decline in coal-generated power, increase in natural gas renewables.
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Solar was nonexistent in 2005, now it makes up a relatively large
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share of electricity capacity already, with a projection and the
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expectation that's going to increase.
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But it's not only that the composition now is going to continue to be changing,
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but it's also that the top end is going to start to rise, and I think that's
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very different from what we used to see.
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Steve Odland: Yeah.
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And even though personal computers began to be adopted in the '80s and really
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went through widespread adoption through the '90s, that power consumption—using
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the internet and the development of the internet—is now ramped up on steroids.
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Because the internet is evolving to introduce all of these AI tools, and
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that consumes exponentially more power.
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And hence, the data centers that are being built and that power consumption.
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So all of this, you've described it, I think, as an exponential curve.
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Alex Heil: That's very true.
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And just to give another point of reference, overall electrification and
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decarbonization in both the building and the transportation sectors, they
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play a large role here, as well.
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So just take electric vehicles.
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If we converted every vehicle on the road currently to an electric vehicle.
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So everything that currently has a gas tank turns into
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one with a plug, essentially.
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We would increase the total demand on our electricity grid by about 25%.
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This is meaningful in a world where decarbonization and
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electrification is increasing.
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And this is not just a data center issue, but there are certainly other
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demands also placed on what is a fraying and, in some parts of the
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country, deteriorating electricity grid.
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Steve Odland: And then you have the move against natural gas use in the home,
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both in terms of furnace and cooking, because of the emissions in the home,
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the carbon monoxide and other toxins that are emitted from the burning of that gas.
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And so there is the electrification of buildings moving away from gas.
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But all of this, it puts pressure on the grid, but it also makes us risky,
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as we're so dependent on a sole source of power or of energy use, aren't we?
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Alex Heil: I think New York City, just to point out one example, with its Local Law
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97, the local ordinance that basically is trying to accomplish the decarbonization
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and electrification of the building stock in the five boroughs of New York City.
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In the discussion of that policy, a lot of the issues that came up were what analysts
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were referring to as the winter peak.
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So it's not only that there's an electricity peak in the summer,
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when temperatures peak, but also if everything is electrified in the home,
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in businesses, and all the buildings, then also the heating is electrified,
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right through heat pumps and so forth.
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And that means on cold days, there also might be a spike in electricity demand.
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And so there is a risk when there are outages, there's risks that in
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very cold temperatures, certainly, there are harmful effects for
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residents and business owners.
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So I think, yeah, a new type of electricity system and electricity
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use system brings with itself new operations, a new way of operating
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that system, as well as new risks.
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I think that's very true.
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Steve Odland: Yeah.
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At least when you have energy, spread around and diversified into gas, solar,
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coal, gasoline, natural gas, diesel, all of these various energy forms, if one goes
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down, you can keep the economy rolling.
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And we were talking at 30,000 feet here, the entire US economy,
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but if you literally had the entire economy electrified, wow.
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Somebody could, a competing power could, power meaning an adversary,
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geopolitical adversary, could jam the electricity system or do a cyber warfare.
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I mean, they could take down the whole economy.
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Alex Heil: Yeah.
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I think that, like I said, I think there's certainly concerns like that.
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I think it also brings up the importance of storage, electricity storage.
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Some of that is still relatively short duration, so that may get
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you through a four-hour period, especially in the shoulders around
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the electricity peak during the day, when you're talking about solar.
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And so there are different ways one needs to start thinking
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about providing power to users.
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And, similar to investment portfolios, diversification is a good strategy.
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I think we need to balance diversification with some of the carbon removal and
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carbon reduction goals, as well as just the operational risk, and making
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sure that, in the overall scheme of things, we're adopting cost-effective,
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low-carbon sources of power.
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And that requires a new way of thinking and a new way of operating
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and managing the electricity grid.
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Steve Odland: Yeah.
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And not to get off track, but you've been very articulate on many of these adjacent
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subjects, including the need for nuclear development as a baseload source of
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energy, but also carbon sequestration in order to meet our overall carbon goals.
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Alex Heil: Yeah.
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Both of those, the data that I usually cite around nuclear is the average nuclear
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reactor in the US is 40 years old, has maybe now an extended design life of 60.
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So by the time you get to 2050, the US without additions is
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out of the nuclear business.
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So I think that there are all kinds of constraints, and the share of nuclear,
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percentage of the overall electricity capacity in this country has not moved.
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We've added a couple plants, but certainly that sector has suffered
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from cost overruns, cost delays.
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The most recent plans that were added have not exactly been exemplary
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case studies in cost containment.
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And I think that's something that the nuclear industry is still suffering from.
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And in a world where we don't have the designs that are essentially
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uniform across the entire country, but every project is a unique challenge
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in itself, it's hard to see how the costs are going to come down.
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And, yeah, you mentioned the carbon removal, carbon sequestration.
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That is something that has certainly been developed, but it's still, the
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scalability is still something that is, there's a big question mark around this.
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And I think we've captured that in our research, and frankly, we've captured
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this in prior conversations, right?
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We've talked about some of the ins and outs of carbon sequestration, and if you
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really want to do this at the gigaton level of emissions, that is something
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that is going to require another level of investment and effort to get there.
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Steve Odland: And also energy because it's countered.
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The reason I bring it up is because you've got multiple goals here.
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And if you want to get to your carbon goals, you actually have
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to produce even more energy.
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But speaking of which, you mentioned the 25% increase if we electrified all
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transportation, but what is your demand forecast over the next decade or so?
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Alex Heil: I think the honest answer is, it's really hard to say.
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It used to be the case that electricity demand in total in
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the country grew at half a percent per year, something like that.
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That has ramped up over the last couple years.
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So when I say ramped up, it's doubled in terms of the growth rate, there's
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potential that it might grow even more.
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I think it's important, though, to keep in mind that as of right
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now, 2025, the load placed on the
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system by data centers feeding large language models, AI, and so forth is still
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Alex Heil: relatively small.
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We're talking 3.5%, something like that.
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We're not in a case of, let's say Ireland, where nearly a quarter
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of the electricity load right now it's because of data centers.
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We're a very different world still, but if the 3.5 or 4%, if the total electricity
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load that comes from data centers, if that's going to double, if that's going
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to triple, if we're talking 10%, that is going to mean that the overall demand
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for electricity is probably going to, anywhere around a percent, 2% per year.
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And that's may not sound like much, but that's a huge difference from what we had.
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And that's going to require a whole other level of planning for capacity,
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especially when we consider that these increases are not uniformly
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spread all over the country, right?
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They appear in regional pockets, where there are data centers in
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Virginia and other parts of the world as Texas, that's a growing market.
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There's much more growth contained in some of those markets, and that
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is going to bring very concentrated effects both on the capacity
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constraints, as well as prices that consumers and businesses experience.
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Steve Odland: We're talking about energy supply, demand, and
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where are we going in the US?
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We're going to take a short break and be right back.
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Welcome back to C-Suite Perspectives.
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I'm your host, Steve Odland, from The Conference Board, and I'm
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joined today by Alex Heil, senior economist at The Conference Board.
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Alex, before the break, we were talking about your demand forecast, and you were
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saying 1-2%, and you mentioned that it doesn't sound like a lot, but that's big.
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It's a lot of energy, and we haven't been adopting a regular practice over
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the past couple of decades of expanding our production or our distribution because
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we've had this conservation dividend.
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Where do you see conservation going?
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Is there another step, big step that we could do to save energy in various places.
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Alex Heil: I think, if we're labeling this energy in terms of primary energy, right?
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So everything at the very even front end of gas and so forth that is used, I think
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there are a lot of opportunities still that come from electrification, when
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we're talking about overall efficiencies.
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So moving from furnaces to heat pumps, just to give an example, creates much
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more efficient energy use conditions.
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It will mean that we're using more electricity and we, before the break,
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talked about some of those, the issues that come along with that.
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From an energy use overall, that means greater efficiency, but it's a different
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system that we certainly need to manage.
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I think another sort of the large-scale opportunities where
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there is a lot to be gained is on the transmission and distribution side.
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Our grid is relatively old.
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Some parts of the country, the infrastructure is decades, near
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century old, something like that.
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It's literally a grid that as we have learned, as a result of
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some of the climate impacts, is failing in parts of the country.
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But there are new technologies available that, for instance, make even existing
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transmission lines more efficient.
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And what is called usually in that context reconductoring is equipping
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transmission lines with new materials that are more efficient, that are
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better capable of transporting electricity over longer distances.
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And I think there are efficiencies to be gained there.
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Is that going to be enough?
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No, probably not to meet the demand over the next 20 years or so, but it's
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certainly something that is going to take the sting out of certain markets,
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and I think that is certainly true.
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And on the generation side, I think, we have a lot of opportunity
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to have some of the low-cost renewable power sources, solar in
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particular, to be added to the grid.
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Obviously, where it's suitable from a perspective of just the
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location being friendly for solar and being economically feasible.
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But I think there are low cost, there are efficiency ways that
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we can add capacity, as well.
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But overall, I think we are still grappling, we as an energy analyst
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community are still grappling with this notion of what will the future look like
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once we're talking about electricity demand that is actually going up at a rate
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three times as quickly as a decade ago.
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That is still to be determined.
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Steve Odland: Now this distribution point, you made many points
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here and really important.
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Just for our listeners, you have to dial back to your high school physics classes.
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The resistance is measured, electrical resistance is measured in ohms.
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And there is this resistance, or think of it as friction in the system, from the
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transmission point to the end user point.
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And part of that is the material that's used to conduct that transmission.
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Part of it is distance.
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And so over distance, it's lost.
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And so your points, Alex, on using new materials and what you call
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regeneration, which is like a booster along the line, essentially is, it takes
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investment, but it will help get more of what is produced to the end user.
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But I think you've also talked about fewer Very large mega plants
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and more distributed generation, too, which would help, right?
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Alex Heil: Yeah, I think the distribution of electricity
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generation is absolutely critical.
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I think it'll make a lot of sense to have more distributed solar, combined
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with storage, in many parts of the country, but also, there's this whole
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notion of, let's say, microgrids.
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So a campus location, a business park, they may manage the electricity demand
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and operation within that area, within those buildings, within those facilities
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on an almost enclosed basis that is separate from the grid overall—obviously
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connected, but there's separate management and operation that takes place.
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I think there's real room for some of those innovations in order to
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make sure that the overall system is not too dependent on a huge few
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large connections that, if they go down, supply's at risk for hundreds,
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thousands, or millions of people.
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Steve Odland: But even with these technologies, you've talked about
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the need to invest in generation.
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There also needs to be investment in the distribution, not only in
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these techniques that you're talking about, but also capacity, correct?
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Alex Heil: Yes.
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And simply, it's just replacement of existing lines, replacement of
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infrastructure that is currently there that, of course, you're going to improve
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and upgrade capacity of those lines.
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But at the very basic level, you're really replacing one line
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with another that obviously meets modern engineering standards.
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But I think a lot of that will have to happen, especially when one considers
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that also electricity is flowing between different, in the US, between different
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states, depending on usage on generation, on overcapacity in certain states and
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constraints and shortages in others.
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So the investment in those lines, that is going to be critical.
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And frankly, from what is the cost overall, if that's an
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important question to ask, as well.
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That's going to be one of the main cost drivers.
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Steve Odland: Yeah.
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And then there's the whole hardening of the system so that you have
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greater uptime and reliability.
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Now, part of that, if you think about the California fires, part of the
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problem with the fires was created by outdated generation and the interference
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with dry brush and trees and so forth.
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So there's a need to harden the system.
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Hurricanes also, or large storms, tornadoes, whether they take
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out these systems, and so we need to move them underground.
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We need to use these new technologies.
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But it's essentially replacing what has gone in over the past 150 years,
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which is not easy, number one.
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Number two, there are land-use issues.
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You can't just bury these things everywhere.
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Three, it's trillions of dollars, and it takes time.
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So all of this is necessary over the period of time at the same time
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that we're trying to expand the system to meet increased demand.
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So the combined needs of generation and distribution and
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upgrading, from an investment standpoint, Alex, is just enormous.
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And that's at a time when the states and federal governments are running deficits.
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So it's a huge challenge.
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Alex Heil: Right, that's very true.
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If I just pick up on one point that you made, so it is certainly true that these,
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let's say transmission distribution lines, they require a lot of investment.
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So do generating capacity, new generating sources as a result of this uptick
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in demand, in part from data centers and in part from electrification.
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One big question in all of this is these incremental costs, how
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should they be allocated to users?
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So there's, based on the economics, you can consider that the person
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who has caused the increase in demand should be responsible for
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a large share of those costs.
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But this is easier said than done in many circumstances.
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But you really have to grapple with this question of how some of these
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tremendous increases in cost that, not in all cases benefit all users of the
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system, how should they be assigned?
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In terms of the connection to a data center, the nuclear power plant
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that is now being run for longer and requires more investment because
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otherwise there would be a shortage of electricity in a certain region.
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Who is going to pay for this?
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Because what we've also seen is that electricity rates, they have
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been increasing fairly dramatically, in some parts of the country
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more dramatically than others.
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And businesses and households are feeling the pinch.
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So I think going forward, just from a proper economic cost/causation
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perspective, that will be a whole other issue to wrestle with.
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Steve Odland: And these rate increases have been substantial.
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I think we've seen what, 30 to 50% rate increases in California
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alone due to some of these issues.
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Now, normally, as you invest in supply in excess of demand, pricing comes down.
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But because that investment in supply is so expensive.
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It needs to be spread over a larger user base, that isn't necessarily the
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case that the prices would come down.
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So it feels like, almost regardless of supply and demand
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balances, prices have to go up.
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Alex Heil: I think initially, maybe a year and a half ago, when this debate
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around data centers and the demand on electricity capacity first really came up
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in the news, a lot of the utility folks were talking about this from exactly the
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perspective that you just mentioned, which is we have more demand, and so we need
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to invest in more capacity, but that can be spread over the large number of users.
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So the marginal cost might actually be beneficial for everybody.
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It's not going to drive up rates too much.
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That discussion has morphed a little bit because what data now more recently
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discovered seem to suggest is that some of the wholesale costs, especially
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around data centers, have gone up orders of magnitude faster than what
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we're seeing for the average prices in the electricity grids overall.
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And so there clearly are these cost pressures that are emerging.
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It's too early to say that this is going to be the long-term trend,
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because there's some overinvestment, there's a lot of activity right now.
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We'll have to see how this all looks once the dust settles.
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But I think that these cost pressures are real, and they will be felt by
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businesses and households that, in effect, had very little to do with
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some of the investments in the way that they are made in the first place.
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Steve Odland: Yeah, and we've been talking largely from a consumer
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standpoint, where pricing is basically given to them without a
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lot of competition or any choices.
25:35
Businesses are a little different.
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How should businesses be planning for this?
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What should they be doing?
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Alex Heil: I think businesses, there are several strategies, there's a whole host
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of strategies, it's a complicated field.
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I think managing their own load profiles to avoid peaks is helpful
25:53
when negotiating rates with utilities.
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I think smoothing out, and that's as a result of potentially utilizing
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storage, that's as a result of moving operations and shifting peaks
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that way, that can be very helpful.
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I think there's room, and we mentioned this earlier, for some of the
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distributed generation resources.
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So low-cost solar and storage for large businesses where it makes sense can
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be a good strategy to become at least partially independent and resilient.
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And I think that's a reasonable strategy, as well.
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But maybe above all, you really have to be aware of what's going on in
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your region, in your grid region.
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It's where the grid is managed in the United States, in
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these different grid regions.
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And then more locally, I think important considerations there are
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really, what is the trend going to be, and what does that mean?
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Even if I'm just a relatively midsize business or larger business, and
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I have in the past have just been buying these electricity rates,
26:57
these electricity products that were offered from the utility.
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But now there might be the time when active management anticipation
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and planning is really replacing the "lean back and wait" approach.
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Steve Odland: Any final thoughts on this whole area of
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electricity and power generation?
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Alex Heil: I think it's a fascinating area to study.
27:18
Things have changed a lot over the last 24 months.
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I think we are living now in a world where gas has taken on importance because
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of the large share that it contributes in the power sector, in particular.
27:31
but there are constraints and shortages that have now materialized.
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A) it takes a while to add gas plants, generating plants to the grid.
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The turbines, they are all in back order.
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It takes a while to get those.
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That's measured in years, not in months, in most cases.
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So that's been identified in the past as one of the main
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fuels in this electricity story.
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But I do think that with the falling cost of some of the renewables, solar
27:59
in particular, and storage—the cost of storage has come down tremendously.
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There's a real role that that particular resource can play to provide electricity
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to companies and consumers in a whole wide range of sectors in the market.
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We, as of the end of this year, we're marking the day that we will have been
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paid, our solar system that we have on our residential home will have paid for
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itself in just under six years, which is actually faster than was anticipated.
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And that's in northern New Jersey, which arguably is not the most
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solar-friendly part of the country.
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But I think there are opportunities there.
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It really just takes a careful consideration of cost, of efficiencies,
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of capacity and how it can be utilized.
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It's a very nuanced story.
28:51
Steve Odland: Yeah.
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And the length of home ownership is close to 12 years.
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With the reduction is cost, the payout is higher, and hopefully
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this will make it more financially doable for US households.
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Dr. Alex Heil, thanks for being with us today.
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Alex Heil: Thanks so much for having me, Steve.
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Steve Odland: And thanks to all of you for listening in to C-Suite Perspectives.
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I'm Steve Odland, and this series has been brought to you by The Conference Board.