US Power Demand Growth: What Are the Drivers?

Emerging data center demand for power supported by the artificial intelligence (AI) boom is getting a lot of attention in forecasts suggesting that US power supply and infrastructure may not be up to the task. But the data center industry is only a blip among a host of industrial and manufacturing drivers that is shifting US power demand growth projections higher following years of relatively flat demand — a trend already starting to emerge. Biden administration policies and generous incentives passed by Congress in recent years are driving major investments in energy-intensive industries, like hydrogen production, desalination, electric vehicles (EVs), EV battery manufacturing and semiconductor manufacturing — all of which consume large amounts of electricity.

See this week's companion piece, delving deeper into the low-carbon implications of this growth, here.

Data center demand growth makes up about 1%-2% of current US energy consumption. It marks just one factor driving the nationwide forecast of electricity demand growth up from 2.6% in 2022 to 4.7% total over the next five years, based on national cumulative growth in peak load for 2023 forecasts from 2023-28, consultancy Grid Strategies' research and policy manager, Zachary Zimmerman, tells Energy Intelligence. Grid Strategies produced a December 2023 presentation estimating forecasted "peak demand growth of 38 gigawatts through 2028, requiring rapid planning and construction of new generation and transmission.”

But often overlooked is the semiconductor sector, which has attracted about $200 billion in private investments for the construction of new or expansion of pre-existing fabrication facilities, an Apr. 19 Center for Strategic and International Studies report found. This is driven largely by the 2022 Creating Helpful Incentives to Produce Semiconductors (Chips) Act, which provides about $53 billion in subsidies to onshore semiconductor chip manufacturing in the US, as a matter of national security. Not to mention, increased data center development will translate to increased demand for chip manufacturing.

This trend can already be observed regionally. Arizona Public Service (APS) estimates that electricity demand from the “data centers, large industrial, semiconductor manufacturing” segment will increase from 3% in 2023 to 34% in 2028. This would be driven in part by power supply to Taiwan Semiconductor Manufacturing Company’s new semiconductor fabrication facilities in Phoenix, the first phase of which will require about 200 megawatts of power. “At full build-out” the plant could eventually require “approximately 1,200 MW,” APS said in a June 2021 state regulatory filing.

Nationally, projected demand growth is largely triggered by incentives within the Chips Act, the 2022 Inflation Reduction Act and the 2021 Bipartisan Infrastructure Law. “Those three pieces of legislation are really driving the onshoring of manufacturing in a lot of ways. A lot of that is related to Chips and data centers" and "a lot of clean tech manufacturing,” Zimmerman said.

Interconnection Backlog

These developments may catch energy planners off guard as US grid infrastructure is not prepared for this level of growth. The US Federal Energy Regulatory Commission (FERC) estimates there is currently 1,565 GW of generation capacity — about 95% of which “comes from solar, wind and battery storage resources” — active in interconnection queues, notes FERC’s 2023 State of the Market Report released on Mar. 24. The capacity in the queue surpasses the 1,268 GW of US "installed electricity generation capacity at the end of 2023" by more than 20%. FERC underscored the importance of “planning, siting and paying for interstate electric transmission lines” to free up that capacity in waiting.

Higher demand projections and insufficient transmission infrastructure may mean increased reliance on natural gas and even the continued operation of coal plants. For example, PacifiCorp subsidiary Rocky Mountain Power has abandoned plans for the early retirement of its coal plants in Utah. The decision follows discussions between data center developer Tract and Rocky Mountain Power for a major data center park requiring more than 400 MW of new transmission infrastructure by 2028. However, tech companies can be quick to work out efficiencies in power consumption — for example, data centers can optimize processing power by utilizing various levers at their disposal. Further, while AI's need for power could add to global emissions, the technology itself could also "drive long-term sustainability benefits through power grid optimization" while "improving carbon capture and storage technologies," Morgan Stanley said in a Mar. 8 research report.

Unscrupulous Demand

When it comes to emergent demand, however, not all customers will be scrupulous about emissions and others have varying needs when it comes to load flexibility. EV stations, for example, are sprawled across the country and can cope with a flexible load, making them more amenable to heavy reliance on renewables. But large semiconductor fabrication plants tend to run 24/7 and an average of about 100 MW per fabrication facility, making them more amenable to baseload generation.

But the Biden administration's rush to onshore the semiconductor industry in the US may preclude the climate mitigation plans ostensibly required for semiconductor fabricators to access $52.7 billion in Chips subsidies. Despite the public commitments of the four largest semiconductor fabricators in the world "to 100% renewable energy, the rapid expansion" of semiconductor manufacturing in the US "has not been met with an equivalent scaling of renewable energy projects to meet the projected 2.1 GW in new electricity demand from US semiconductor factories that are currently under development," nonprofit Stand.earth says in its recent Clean Clicks or Dirty Chips? report. Semiconductor giants like Intel and TSMC have "not followed the lead of data center operators like Apple, Google and Meta in matching their expansion with additional renewable electricity projects." Instead, they have relied heavily on buying renewable energy credits, which critics don't view as a successful strategy for increasing renewable energy deployments.

To qualify for the billions of dollars available under the Chips Act, applicants have to provide climate change mitigation and sustainability plans. The US Department of Commerce has already entered into non-binding preliminary terms to provide more than $20 billion in direct funding to Samsung, Intel and TSMC under the Chips Act, but the details surrounding their mitigation and sustainability plans have not been made public.