Global Power Markets: Surging electricity demand challenges US utilities; CEOs turning to generation, wires

Banner Image

After decades of slow load growth, surging power demand from electrification of the US economy in a context of increased technical and environmental pressures poses multiple challenges for power markets and utilities, executives said April 16.

Some of the executives, speaking at the S&P Global Commodity Insights Global Power Markets event in Las Vegas, suggested ways of meeting those challenges include improved and expanded generation and transmission technology.

From about 1990 to about 2007, load growth in the Lower 48 states averaged about 2% a year, said Douglas Giuffre, senior director for North American power markets analysis at S&P Global Commodity Insights, but in the wake of the Great Recession, load growth slowed to about 0.2% a year, as energy efficiency efforts bore fruit.

Combining utility projections with consultants employed by regional transmission organizations, "they had consistent load forecasts that over-projected," Giuffre said.

The North American Electric Reliability Corporation noticed this and revised its projected load growth percentages downward to about 0.5% in 2022, but more than doubled that projection in 2023 to about 1.2%, partly because of surging demand from data centers, Giuffre said.

"For many parts of the country, this is a dramatic shift from where load growth had been to know what's expected to come," Giuffre said. "And this is going to require a lot of utilities and RTOs to kind of wrestle with this question: How do you manage to meet this potentially rapidly growing demand that we just haven't seen? … What has changed, clearly, is the sudden discussion of data centers."

Data centers currently consume about 185 TWh a year, "the equivalent to all the residential electricity consumption in Florida and New York today." Across the various RTOs, data center load is projected to add about 250 TWh, "the equivalent of adding Texas and California residential load," Giuffre said.

'An uptick in gas'
Such surging demand cannot reliably be served, at least in the short term, without adding natural gas-fired generation, Giuffre said.

"Natural gas had been obviously for quite some time a leading resource in the market, but we're likely to be at a 25-year low in terms of new gas additions this year," Giuffre said. However, S&P Global researched the integrated resource plans of several utilities, and "what we’re seeing is an uptick in gas either to replace existing coal-fired generation or as peaking capacity to support renewables."

Vincent Sorgi, president and CEO of PPL, the Allentown, Pennsylvania-based utility holding company, said, "The key to the clean energy transition and getting renewables deployed at scale is natural gas."

"Batteries right now are significantly more expensive than building new natural gas, and the new natural gas units are incredibly efficient," Sorgi said during a "fireside chat" with Xizhou Zhou, vice president of the Gas, Power and Climate Solutions group at S&P Global.

"I think, in general, politicians understand the value of natural gas so they seem to be a lot more amenable" to allowing its growth, Sorgi said, particularly if it is combined with carbon capture and sequestration or alternative fuels such as renewable natural gas or hydrogen.

"So, I think you’ll continue to see that in integrated utilities … for more fossil generation," Sorgi said.

Cindy Crane, CEO of PacifiCorp, the Portland, Oregon-based utility holding company, said her company has proposed gas-fired generation to some utility regulators "under the condition that they’re capable to convert to hydrogen."

"We are saying that those are needed to bring that reliability for a longer term in our system," Crane said.

PacifiCorp is also pursuing nuclear power development in the form of a 385-MW small modular reactor pilot project with Bill Gates’ TerraPower, with groundbreaking schedule for June 10 in Caspar, Wyoming, Crane said.

Transmission expansion
PacifiCorp has also embarked on a 20-year transmission expansion plan involving 345 kV and 500 kV lines estimated to cost about $12 billion, with to of the larger segments resulting in a high-voltage network of more than 1,100 miles of line.

"Then, we have several hundred miles more that are scheduled to be coming online between 2025 and 2028," Crane said.

Doug Cannon, president and CEO of NV Energy, which serves significant load centers in Las Vegas, Reno and Carson City, said his company is building more than high-voltage lines along the state’s western border to Reno, east across the middle of the state to Ely and then south to link up with NV Energy’s existing grid.

"What you're going to see if you picture Nevada, there's going to be a giant 500-kV triangle that goes around the entire state that is going to improve reliability for our customers [and] dispatch our system in a more efficient way, dropping energy costs for customers," Cannon said. "It's also going to open up a lot of area that previously could not be developed for renewable energy. There's tremendous solar potential along the west side of the state of Nevada, where there was no transmission. In addition, in the center part of the state, there's more solar potential, as well as improve the geothermal potential."


  • Gas & Power

Related content

Thought Leadership

Hydrogen producers mull renewables sourcing for electrolysis projects amid new US regulations

US-based hydrogen sector developers are considering which renewable procurement strategies will align with both domestic and international standards for electricity sourcing amid proposed Inflation Reduction Act rules by the US government. Producers in the hydrogen sector have highlighted the increasing popularity of integrated projects to facilitate adherence to a stronger global regulatory environment. The drafted guidelines for the IRA 45V Production Tax Credits regulation for hydrogen announced Dec. 22, 2023, by the US Treasury and Internal Revenue Service may add barriers to adopting low-carbon hydrogen, slowing investments in hydrogen production, reducing affordability and stifling market growth, according to an S&P Global Commodity Insights analysis. Developers of electrolysis-based "green" hydrogen and its derivatives are exploring provisional options to secure renewable energy and comply with additionality criteria, despite generous subsidies for low-carbon hydrogen production. Before the introduction of the draft IRA rules, many electrolysis-based projects planned to connect to the grid and meet electricity demand. However, with the current rules designed to ensure that subsidized hydrogen production avoids increasing emissions -- especially from the electric grid -- dedicated renewables are becoming a more common approach. Developers view integrated projects as an option that effectively meets the three pillars approach while reducing the challenges that come with the presence of transmission bottlenecks and grid connections. Large-scale US projects exporting hydrogen to Europe have clarity on the EU delegated Act and additional criteria for renewable hydrogen generation. However, a lack of clarity on production in the US may cause delays in financing and final investment decision for hydrogen developers. Electrolysis projects that plan to use grid power are currently not viable for investment without the final rules, resulting in significant delays in project development. However, integrated projects that utilize dedicated or "islanded" renewable-powered electrolysis can potentially proceed, although they still encounter technical and contractual challenges without subsidies for grid-powered electrolysis, according to Commodity Insight analysts. Producers mull grid-connected option for tax credits A leading electrolysis-based hydrogen developer in the US told Commodity Insights May 30 they would continue forth with their plan of using a blend of electricity from the grid and from a power purchase agreement that sources renewable energy with the environmental attribute attached until directed otherwise by the final IRA rules. The developer intends to achieve a lower carbon intensity score by matching their energy consumptions on a one-on-one basis with renewable energy credits. The developer and other sources are considering an alternative approach by oversizing their wind/solar PPAs and optimizing operations based on grid prices -- per the draft rules, this strategy would only be viable if it were to meet the three pillars. As current policies stipulate additional renewable procurement for green hydrogen production, behind-the-meter projects will be a more established approach for sourcing electricity, a renewables developer told Commodity Insights at the World Hydrogen North America Conference, adding that integrated renewable energy development that are co-located with hydrogen projects is the most common practice he sees in the market. The colocation of renewables and the absence from the grid is intended to avoid basis risk in deliverability of energy in times of low grid capacity, grid connection queues and associated costs, the renewables developer added. Developers are facing the challenge of proceeding with their initial energy sourcing strategy and hoping it aligns with policy when finalized. However, some projects are evaluating the economic viability of constructing dedicated renewable assets on site to meet the additionality criteria. Regulation effects on hydrogen, derivatives The draft rules of the IRA received substantial feedback of approximately 30,000 comments from market participants, and some comments argued that facilitating grid connections and grid-based electricity consumption would expedite hydrogen production in the initial years, resulting in cost reductions. Michael Wheeler, Vice President of Government Affairs at Intersect Power, said in the company's comment on the Treasuries Draft rules that "regulations should promote development of hydrogen facilities that will be able to continue to operate in the long-term after any tax incentives are phased out." Wheeler said after the incentives, hydrogen projects would retire, as they would be too financially dependent on government support for offsetting costs that result from the hourly matching requirement. New Fortress Energy said the 45V draft rules "will significantly limit clean hydrogen adoption in the US, delay the Biden Administration's decarbonization efforts, and eliminate the potential for millions of jobs that the clean hydrogen market could generate." The company currently has a project to produce electrolysis-based hydrogen, which it will supply to OCI's green ammonia plant in Beaumont, Texas. OCI said it plans to take advantage of the program in the US, along with EU production guidelines, which both have CO2 costs built into dashboards, allowing for more international standardization for hydrogen projects, Vice President of Global Sustainability at OCI, Hanh Nguyen, said at the World Hydrogen North America conference.

Thought Leadership

INTERVIEW: Alphamar director sees 17 million mt of Brazilian corn going for ethanol

Ethanol will create new prospects for Brazilian corn in the domestic market, with corn for ethanol use rising sharply to 17 million mt in the next marketing year, Arthur Neto, partner director at Alphamar Shipping Agency, told S&P Global Commodity Insights June 12. Register Now Pointing to the impact on domestic and export markets, Neto said on the sidelines of the IGC Grains Conference in London that increased use of ethanol for corn will push prices up, incentivizing corn production in a situation where "the market is flooded by corn because you don't have much exit for it in the domestic market." "This is going to be a dynamic that's going to make the price on the domestic market go higher, which makes the producers maintain the corn inside, meaning that if you have export demand, you need to pay much more," Neto said of the expectation of 17 million mt of corn for ethanol usage in marketing year 2024-25. For 2023, the figure was 13.26 million mt. Speaking on whether Brazilian corn is trading higher than competitors' in the current season, Neto said, "you have to understand that the market is very heated internally, so it doesn't make sense for the farmer to just sell it at pennies for the international market." "I do believe that there's going to be a lot of market, but not as much as in the previous year, because the market is good for the farmer domestically, and they will hold on to the cargo in the country, even though there are many incentives to export," Neto added. 'We are here to sell' Responding to speculation around China's move to bridge the gap between its domestic supply and consumption and what it means for its biggest supplier, Brazil, Neto said carrying out that plan would take time. "China is growing, not as much as it was, but there's a lot coming out of there," Neto said. Any change in China's domestic supply and demand equation will have a major impact on the global balance sheet, considering China's position as the biggest demand center for corn. "I wish them the best of luck," Neto said. "I hope they make it and reach their goals. Meanwhile, we are here to sell." Big flooding impact on soybeans, less on rice Speaking about flooding in Rio Grande do Sul, a key agricultural province that was expected to produce 70% of the country's rice and about 15% of its soybeans in the current marketing year, Neto said the floods were less likely to have a major impact on rice, but soybean production could take a hit. "Roughly 85% of the rice was already harvested when we had the floods," Neto said. "Now we just have logistics issues. Some delays are expected, but not much." However, he said he thought the floods would leave their mark on soybean production, a big factor considering Rio Grande do Sul's strategic location closer to major ports. "Soybeans were the core produce in the region, shipped to the port close to it," Neto said. "That system itself is going to lose a lot of volume." Neto further pointed to the floods in Rio Grande do Sul causing a terminal outage, which is posing a "big risk to the entire export ecosystem." Lower water levels a concern for shipping Brazil's northern ports saw some of the lowest water levels on record last year because of a severe Amazon drought, forcing cargoes to be diverted to Santos. The Alphamar director compared challenges in the northern ports to those on the Mississippi River in the US in the previous year. "When we talk about the northern ports, we're not talking about any problems with the capability on the ports," Neto said. "The water levels are OK. The problem is the cargo being transferred." He added that at some point, the water level will be so low that convoys will have to be disassembled to pass over shallow areas. "Sometimes a trip that is to be done in two days can take around five, so of course, with the total turnaround of the barges, it's very bad," Neto said, adding that there could be two months of major shipping challenges.

Thought Leadership

MPGC 2024: Navigating Uncertainty in the Energy Market Amidst Global Shifts

The annual Middle East Petroleum and Gas Conference convened in Dubai from May 20 to May 22 at a time of heightened concern about the oil markets, the longevity of OPEC+ cuts, the future of hydrocarbons and the switch to non-fossil fuel sources by the middle of the century. The S&P Global Commodity Insights-run event focused on the outlooks for oil and gas on day one with insights from inhouse experts as well as industry leaders and external analysts. The event opened with a keynote address by Emirates National Oil Company group chief executive Saif Humaid Al Falasi, who heads a leading energy company in the UAE. On day one, Carlos Pascual, senior vice president - global energy & international affairs at S&P Global addressed the deepening polarization in the US, the ongoing China-US standoff and potential spill out, and two ongoing wars – Russia-Ukraine and Israel-Hamas – all of them risks to energy market stability. Pascual also talked about energy poverty in the developing world – where many lack access to electricity and have been left behind by the rapid pace of the energy transition. FGE chairman Fereidun Fesharaki tapped his famous crystal ball for analysis on the oil markets. He noted that with a global surplus capacity of 6 million b/d, the world is unlikely to see dramatic swings in oil prices in the event of major political conflict. The focus also turned towards liquefied natural gas, which is widely seen as a transitional fuel. The global LNG market is heating up with European LNG prices rising to a five-month high amid ongoing geopolitical risk factors and tightness in European supply, according to Commodity Insights. There will be “chaos in the markets for the next few years” as the supply of LNG is set to increase by 50% in the next two years, Fesharaki said in his crystal ball analysis. The conference's much-attended events were the ones focused on oil market vagaries with traders concerned about to navigate the sector rife with so much uncertainty. S&P’s Global's vice president and head of crude oil market and energy and mobility research, Jim Burkhard said in his presentation that the surplus in the market will last as long as the US continues pumping more oil, which could extend for a year or two. Members of OPEC+, who are due to meet virtually on June 2 have to make choices about whether to keep the current cuts in place or increase production later this year, he added. Day two of MPGC focused on several downstream tracks with in-house and external experts discussing outlooks for refineries and petrochemicals as well as plans to scale up hydrogen and strategize for a low-carbon future. MPGC attendees also benefited from a day of training courses on May 20. S&P Global experts taught carbon markets fundamentals, oil markets & commercial strategies as well as refining economics and refineries of the future to those in the energy industry.

Thought Leadership

Global upstream spending growth expected to slow, but remains well above climate targets: IEA

Global upstream oil and gas investment growth is expected to slow in 2024, driven primarily by Middle Eastern and Asian NOCs, but remains at levels well above that needed for governments to hit key climate targets in full and on time by 2030, the International Energy Agency said June 6. Global upstream spreading is expected to rise by 7% to reach $570 billion this year, following a 9% increase seen in 2023, the IEA said in its World Energy Investment 2024 report. Cost efficiency improvements have helped contain upstream spending which now stands at 30% below the 2015 peak, the IEA said. At the same time, however, global spending on clean energy such as renewable power and energy efficiency is now almost twice the levels of those on fossil fuels, the IEA said. While investment in clean energy is growing fast, the report finds that oil and gas spending this year is broadly aligned with oil demand levels implied in 2030 by today's policy settings under the IEA base-case STEPS scenario, which shows coal, oil and natural gas demand leveling off or declining before 2030. Measured against its central Announced Pledges Scenario, however, the IEA said upstream spending is on pace to be around 35% higher than needed for national climate goals to be achieved by 2030. Global upstream spending is also more and more than double the 2030 levels needed if oil consumption falls in line with Paris Agreement targets to contain global warming, the IEA said. As a result, the IEA reiterated its call that no further developing spending on long-lead-time oil and gas projects is needed to meet global demand in the coming decades. "The trajectory for oil and gas consumption is curbed by rapid growth in renewables, efficiency, and other clean energy sources. There is no need in this scenario for further oil and gas exploration, as already-discovered fields are sufficient to cover projected demand," the IEA said in the report. Total energy investment worldwide is expected to exceed $3 trillion in 2024 for the first time, the IEA estimates, with some $2 trillion set to go toward clean technologies – including renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements and heat pumps. Peak demand The IEA's latest energy investment report comes amid a growing divergence in long-term demand outlooks by key forecasters due to uncertainty over the ramp-up and affordability of clean energy sources. The IEA predicts that demand for gas, oil and coal will peak by 2030, with road transport no longer a source of oil demand growth by the end of the decade. Under its central APS scenario, the IEA expects global oil demand to average around 97.5 million b/d in 2030. According to S&P Global's reference case scenario, global oil and biofuel demand will peak at around 111 million b/d in 2031 while OPEC expects global oil demand to reach 110.2 million b/d in 2028. The IEA report also comes a day after a similar investment report which concluded that spending on oil and gas projects worldwide must rise by almost a quarter to $738 billion from next year to meet rising hydrocarbons demand and prevent a supply crunch by 2030. According to the "Upstream Oil and Gas Investment Outlook" carried out by the International Energy Forum and S&P Global Commodity Insights, just over $600 billion will be spent on upstream projects to boost or maintain oil and gas output in 2024, the highest figure for a decade. Analysts at S&P Global Commodity Insights estimate that global oil demand -- including biofuels -- will remain at around 31% of the global energy mix through 2030, while renewable energy sources will grow 6%-8% per year to make up 13% of total energy demand at the end of the decade, up from 8% in 2022. Refining sector In the downstream sector, the IEA said it expects spending on oil refineries to decline globally by 5% in 2024, following a similar trend in 2023 where investment was just under $37 billion. Around 800,000 b/d of new refining capacity is set to come online in 2024, the IEA estimates, with future investments likely to continue to be concentrated in China, India, and the Middle East due to competitive operating costs and stronger demand growth. With a rising disconnect between long-term climate change targets and measured global emissions, many refiners are increasingly opting to rationalize capacity or shift to low-carbon feedstock processing. "Uncertainties around future demand growth present significant challenges for new investments in the refining sector," the report notes. Clean energy investments by oil and gas companies themselves reached $30 billion in 2023, accounting for only 4% of the industry's overall capital spending in 2023, according to the report. Meanwhile, coal investment continues to rise, with more than 50 gigawatts of unabated coal-fired power approved in 2023, the highest since 2015. Clean spending by oil and gas companies in 2023 was a 30% increase from 2022 levels but well below the 65% jump seen from 2021 to 2022, reflecting in part the inflationary environment and supply chain issues for some renewable projects, the IEA said.