Affordability a ‘formidable challenge’ as load shifts to tech, industrial customers: ICF

• Keeping electricity affordable for consumers is a “formidable challenge” amid projections of declining generation capacity reserves and persistent uncertainty around the scale and pace of future load growth, ICF International Vice President of Energy Markets Maria Scheller said Thursday.
• Meanwhile, broad policy uncertainty and an increasingly shaky regulatory environment give utilities and capital markets pause about expensive new infrastructure investments that could become stranded assets, Scheller said in a webinar on ICF’s “Powering the Future: Addressing Surging U.S. Electricity Demand” report.
• Policy conversations around import tariffs, federal energy tax credits and permitting reform are unfolding as the balance of electricity demand shifts from residential and business consumers to technology and industrial customers, which tend to require around-the-clock power, Scheller added.

The coming shift in U.S. electricity consumption represents less of a new paradigm than a return to the industrial-driven demand the country saw from the 1950s into the 1980s, after which deindustrialization and consumer-centric trends like the widespread adoption of air conditioning, electric resistance heating and personal computing shifted the balance toward the residential segment, Scheller said.

The shift is important because unlike residential loads, which show considerable seasonal and intraday variation, industrial loads are flatter, less weather-dependent and more sensitive to voltage fluctuations, Scheller said.

By 2035, ICF expects nearly 40% of total U.S. load will have a “flat, power-quality-sensitive profile,” and that overall load will grow faster than peak load, she said. In 2030, ICF projects more than 3% annual power consumption growth, compared with less than 2% annual peak load growth, according to a webinar slide.

That’s not to say residential demand won’t also grow in the next few years as consumers electrify home heating and buy more electric vehicles — only that data centers and other industrial demand will “dwarf” it, Scheller said.

The only significant regional exception to that expectation is California, where ICF says light- and heavy-duty transportation electrification will drive most load growth through 2040.

Capacity reserves will quickly dwindle across most of the United States as a result of near-term load growth, regardless of the regional drivers, said Lalit Batra, ICF director of energy markets.

“We expect the capacity reserve across most regions to be absorbed in the next few years,” Batra said.

ICF sees nationwide capacity reserves — currently between 20% and 25% — below the 15% target reserve margin by 2030 and in negative territory by 2035, according to a webinar slide. Without a meaningful acceleration in new generation deployment, some combination of delayed power plant retirements, load flexibility or slower overall load growth will be needed to avoid shortages, Batra said.

Building new power plants fast enough to keep pace with load growth will be more difficult if Republicans in Congress effectively repeal the Inflation Reduction Act, according to ICF’s projections. If the final budget reconciliation bill preserves the rapid phaseout of clean energy tax credits in the version the U.S. House of Representatives passed in May, ICF projects the U.S. would deploy 280 GW fewer renewables and storage capacity and 43 GW more gas and nuclear through 2040, even as cost-competitiveness, supportive state policy and corporate power buyers’ preference for clean electricity supports robust regional markets for those technologies.

Regardless of the policy scenario, ICF expects electricity prices to rise as much as 25% in some regions through 2030 due to necessary grid expansion, wildfire hardening and other infrastructure projects, along with gas price volatility, said Deb Harris, ICF vice president for climate change and sustainability. ICF expects U.S. gas prices to be 7% higher in 2035 and 17% higher in 2045 if the House budget becomes law relative to a status-quo scenario, according to a webinar slide.

Utilities and regulators already have the tools to mitigate some of these changes, Harris said. For example, demand response programs and flexible load interconnection could avoid about 30% of infrastructure investment costs that would otherwise be necessary, Harris said. Large loads are more open than some realize to ramping down load or investing in more efficient processes, such as liquid rather than air cooling of server racks, she added.

“These large load customers do offer a lot of opportunities” for efficiency and demand response, she said. “Energy is the number one [operating] cost they face.”

Permitting reforms like uniform siting standards, incentives for brownfield redevelopment and wider adoption of advanced GIS tools to locate “areas of minimal impact” for energy development could speed up new builds and keep prices in check, Harris added.

The catch, she said, is that while efforts to mitigate rising electricity prices may benefit customers and the politicians who represent them, project developers and their lenders and investors want to see durable price signals before committing to build new generation and transmission.