Power to the People

After remaining steady for two decades, global electricity demand increased in 2024 by about 4.3%. The United States saw the third largest absolute demand growth (+2.2%), following China (+7%) and India (+5%).  

Some of the leading factors driving the rise in global electricity use are increasing cooling demand resulting from extreme temperatures, growing consumption by industry, the electrification of transport, and the expansion of the data center sector, mostly in the United States and China. 

In its latest short-term energy outlook, the Energy Information Agency (EIA) forecast annual U.S. electricity consumption will continue to increase at 2% in 2025 and 2026, surpassing the all-time high reached in 2024. This growth contrasts with the trend of relatively flat electricity demand between the mid-2000s and early 2020s.  

Power Supply 

For the first time, clean power sources supplied the majority of U.S. electricity in March of this year, according to data from think tank Ember. This despite the curtailment of some tax credits for renewable power generation. 

Behind the recent clean streak is the sustained high price of natural gas — which is the largest single power source within the U.S. electricity system. However, power generators with more limited renewable supplies have opted to sharply boost coal-fired generation this year, as a means to cut the use of pricey gas.  

As the peak demand for cooling sets in with summer, fossil fuel power generation will again increase within the overall generation mix.  

source: ember/reuters

On the global level, the share of low-emissions sources is forecast to increase from 41% in 2024 to 47% in 2027, according to IEA. Renewables, collectively, will surpass coal-fired generation in 2025, and coal’s share will decline below 33% for the first time in the last 100 years. 

Effects of the New Bill on Energy 

The new OBBB Act in the U.S. was downgraded from a disaster to a disappointment for renewal energy. The final bill included two key positive changes from earlier versions of the legislation: 

• The phase-out of wind and solar credits will now allow four years of safe harbor for projects starting within one year of the bill's passage. This effectively allows projects to be placed in service in 2030 to qualify. 

• The elimination of a tax on renewable energy projects using foreign content above certain limits. Had the 30%-50% excise tax in the earlier legislation remained, it would have added significant costs and made wind and solar less competitive compared to natural gas generation. 

There is also a proposal by the EPA to rescind all greenhouse gas limits for new and reconstructed gas turbines and existing and modified coal and oil/gas-fired power-generating units under Clean Air Act Sections 111(b) and (d). This will be subject to much litigation, and we will have to see where it ends up.   

Investments in Energy 

U.S. energy prices have steadily increased since 2022, at an average rate of 13%, and the EIA estimates they will continue to climb until 2026. These increases are driven by a mix of factors, including infrastructure upgrades, rising demand and regional generation costs. For example, New England saw a 19% increase in energy prices due to higher natural gas prices.  

Much of the U.S. grid is decades old, and utilities are investing heavily in upgrading transmission and distribution systems to support peak demand and extreme weather events.

To offset these upgrade costs, regulators may let utilities raise rates and increase revenue. 

The anticipation of growing electricity demand is spurring the expansion of energy-generating capacity and electricity storage. Much of this additional capacity is from solar and battery storage facilities. The new generating capacity is concentrated in Texas, California, the upper Midwest and the Northeast. Texas is leading in solar capacity, followed by California.  

source: EIA

Batteries: Power from solar and wind is stored in batteries so that it can be released when needed. The rapid uptake in the use of lithium iron phosphate (LFP) batteries, which are much cheaper than traditional batteries and do not use cobalt and nickel, is affecting those metal prices in an already depressed market. 

Nuclear: Nuclear is also having a resurgence, especially with rising data center projects. Small modular reactors and fusion technology from Commonwealth Fusion Systems (CFS) are the latest iteration of power production that Google, Microsoft, Amazon and Meta are tapping to power their data centers. Fusion technology is particularly remarkable in terms of chain-reaction safety and radioactive waste. 

Consistent with the current trends, in a global investment survey, investors indicated their plan to allocate increased capital primarily to electrification-related opportunities, such as grid modernization, renewable energy/clean power, or new/emerging battery technologies. Investors are less likely to be interested in increasing capital allocation to currently popular solutions such as electric vehicles and waste reduction. 

Although the U.S. administration’s current energy policies may cause a temporary setback in renewable energy progress, the economics of sustainable energy are strong and it will undoubtedly define the future of energy production. 

Disclosure: The author of this article holds shares in Google, Meta, Amazon and Microsoft and utilities Next Era and Wisconsin Electric Company. This article is intended solely for informational and educational purposes and should not be considered personalized investment advice.