Powering Up: The Surging Demand for Electricity

Powering Up: The Surging Demand for Electricity  Federal Reserve Bank of Kansas City

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Sep 26, 2024 - 06:00
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Powering Up: The Surging Demand for Electricity

Powering Up: The Surging Demand for Electricity

Powering Up: The Surging Demand for Electricity

After years of minimal growth, U.S. electricity demand recently began to accelerate. Chart 1 shows that for a decade before the pandemic (2010–19), growth in electricity demand was nearly flat (purple diamond). Although population growth and the economic recovery from the Great Recession increased electricity use during this period, these increases were partly offset by widespread adoption of energy-efficient technologies such as LED bulbs and modern HVAC systems. Over the past three years, however, electricity demand has grown on average 1.3 percent per year—more than twice the average rate during 2010–19. Moreover, this surge is expected to continue, with the projected average growth rate for power demand (indicated by the shaded diamond) exceeding rates seen in the two decades before the Great Recession.

Chart 1: After a decade of stagnant growth, U.S. electricity demand has surged, driven largely by commercial demand

Chart 1 shows that from 2010 to 2019, growth in electricity demand was nearly flat. From 2021 to 2023, however, electricity demand grew on average 1.3 percent per year—more than twice the average rate during 2010–19. Moreover, this surge is expected to continue, with the projected average growth rate for power demand exceeding rates seen in the two decades before the Great Recession.

Notes: Stacked bars show the contributions of each component to growth in total electricity demand over the periods considered. The transportation component makes a very small contribution. Shaded diamond represents the average projected growth in total electricity demand from the September 2024 U.S. Energy Information Administration (EIA) Short-Term Energy Outlook (STEO) for 2024 and 2025. Data are annual.

Sources: EIA and authors’ calculations.

A key driver of this recent surge has been the commercial sector, as shown by the purple bars in Chart 1. Commercial electricity demand accounted for 60 percent of growth in total U.S. power demand during 2021–23. Panel A of Chart 2 shows that this growth has been concentrated in Virginia, North Dakota, and Texas, while commercial electricity use in the rest of the United States has remained relatively stable (dark blue line). North Dakota has experienced the fastest relative growth in commercial electricity demand, partly due to the establishment of large computing facilities supported by the state’s abundant and competitively priced energy sources. Virginia has emerged as a major hub for data centers, driven in part by its access to a high-capacity fiber-optic network and to subsea fiber cables that facilitate fast and reliable data transmission. And Texas, one of the most densely populated states with data centers, has also seen significant demand growth due in part to its lower energy costs, robust economic activity, and population growth.

Chart 2: Rising U.S. power demand growth and revised near-term forecasts

Panel A of Chart 2 shows that growth in commercial electricity demand has been concentrated in North Dakota, Virginia, and Texas, while commercial electricity use in the rest of the United States has remained relatively stable. Panel B of Chart 2 shows that the 2024 electricity demand forecast rose from 1.3 percent in the January 2023 EIA STEO report to 2.7 percent in the August 2024 report. The 2025 forecast has been revised even more dramatically: the demand growth forecast in the August 2024 report is more than sevenfold that of the January 2024 report. Forecasts for both years are well above the 2010–19 average growth.

Notes: Panel A shows 12-month moving averages indexed to the 2010–16 average. Panel B shows forecasts of U.S. total electricity demand from EIA STEO reports. Dashed line represents average electricity demand in 2010–19.

Sources: EIA and authors’ calculations.

Near-term forecasts for U.S. electricity demand have been revised up substantially. Panel B of Chart 2 shows electricity demand forecasts for 2024 and 2025. The 2024 forecast rose from 1.3 percent in the January 2023 EIA report to 2.6 percent in the September 2024 report. The 2025 forecast has been revised even more dramatically: the demand growth forecast in the September 2024 report is more than eightfold that of the January 2024 report. Forecasts for both years are well above the 2010–19 average growth (dashed line). These upward revisions underscore the uncertainty in projecting electricity demand, particularly as AI adoption and data center growth ramp up.

Map 1: Data center boom appears to be an important factor in driving commercial power demand

Map 1 shows that states that have become major or emerging hubs for data centers are driving commercial electricity demand.

Notes: Blue outlines indicate the top 10 states for announced clean energy investment. Numbers represent data centers in certain states selected to illustrate a range of electricity demand trends. Virginia and Texas have the most data centers and saw significant power demand growth, while California, with many data centers, saw a decline in demand. Nevada, Oregon, and Arizona have both many data centers and rising demand. North Dakota has few data centers but the highest power demand growth. And South Carolina, which is leading clean energy investment under the IRA, has seen increasing power demand.

Sources: EIA, Data Center Map, E2, and authors’ calculations.

Higher electricity demand signals a more electrified economy. Chart 3 shows the electricity intensity of U.S. GDP (that is, the amount of electricity used per unit of GDP) since 1980 alongside long-term projections. Overall, U.S. electricity intensity has been declining since the early 1990s. However, this trend may reverse if recent demand growth continues. For example, a high-demand growth scenario from the National Renewable Energy Laboratory (NREL) suggests that electricity intensity could increase by 23 percent by 2040 (dashed purple line), driven by the widespread adoption of electrification technologies.

Chart 3: U.S. economy is likely to become more electricity-intensive

Chart 3 shows that U.S. electricity intensity overall has been declining since the early 1990s, in line with a historical trend of a 50 percent decline over half a century. However, this trend may reverse if recent electricity demand growth continues. A high-demand growth scenario from the NREL suggests that electricity intensity could increase by 22 percent by 2040.

Notes: All projections assume 2 percent growth in real GDP. The historical trend assumes electricity use grows at the same average pace as during the 2010–19 period. The AEO 2023 uses the reference case projections from the EIA’s Annual Energy Outlook. The NREL mid-case and high-demand growth scenarios use the corresponding projections under current policies from the NREL’s 2023 Standard Scenarios Report.

Sources: EIA, NREL, U.S. Bureau of Economic Analysis (Haver Analytics), and authors’ calculations.

The surge in U.S. electricity demand, particularly within the commercial sector, underscores the ongoing transformation toward a more electrified economy. The integration of advanced technologies such as AI, automation, and data centers into the U.S. economy is energy-intensive but important for maintaining economic competitiveness. Countries that efficiently power these technologies are likely to lead in innovation and productivity gains. To fully realize the potential benefits of this electrification, substantial investments in energy infrastructure may be necessary. This includes expanding transmission and distribution networks, modernizing the grid, and increasing renewable energy capacity. These investments will not only support growing electricity demand but also ensure that the U.S. economy can continue to grow competitively and sustainably.

SDGs, Targets, and Indicators

  1. SDG 7: Affordable and Clean Energy

    • Target 7.1: By 2030, ensure universal access to affordable, reliable, and modern energy services
    • Indicator 7.1.1: Proportion of the population with access to electricity
    • Indicator 7.1.2: Proportion of the population with primary reliance on clean fuels and technology

  2. SDG 9: Industry, Innovation, and Infrastructure

    • Target 9.4: By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes
    • Indicator 9.4.1: CO2 emission per unit of value added
    • Indicator 9.4.2: Material footprint, material footprint per capita, and material footprint per GDP

  3. SDG 11: Sustainable Cities and Communities

    • Target 11.6: By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management
    • Indicator 11.6.1: Proportion of urban solid waste regularly collected and with adequate final discharge out of total urban solid waste generated, by cities
    • Indicator 11.6.2: Annual mean levels of fine particulate matter (e.g. PM2.5 and PM10) in cities (population weighted)

Table: SDGs, Targets, and Indicators

SDGs Targets Indicators
SDG 7: Affordable and Clean Energy Target 7.1: By 2030, ensure universal access to affordable, reliable, and modern energy services Indicator 7.1.1: Proportion of the population with access to electricity
Indicator 7.1.2: Proportion of the population with primary reliance on clean fuels and technology
SDG 9: Industry, Innovation, and Infrastructure Target 9.4: By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes Indicator 9.4.1: CO2 emission per unit of value added
Indicator 9.4.2: Material footprint, material footprint per capita, and material footprint per GDP
SDG 11: Sustainable Cities and Communities Target 11.6: By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management Indicator 11.6.1: Proportion of urban solid waste regularly collected and with adequate final discharge out of total urban solid waste generated, by cities
Indicator 11.6.2: Annual mean levels of fine particulate matter (e.g. PM2.5 and PM10) in cities (population weighted)

Analysis

  1. Which SDGs are addressed or connected to the issues highlighted in the article?

    The issues highlighted in the article are connected to the following SDGs:

    • SDG 7: Affordable and Clean Energy
    • SDG 9: Industry, Innovation, and Infrastructure
    • SDG 11: Sustainable Cities and Communities

  2. What specific targets under those SDGs can be identified based on the article’s content?

    Based on the article’s content, the following targets can be identified:

    • Target 7.1: By 2030, ensure universal access to affordable, reliable, and modern energy services
    • Target 9.4: By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes
    • Target 11.6: By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management

  3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

    Yes, there are indicators mentioned or implied in the article that can be used to measure progress towards the identified targets:

    • Indicator 7.1.1: Proportion of the population with access to electricity
    • Indicator 7.1.2: Proportion of the population with primary reliance on clean fuels and technology
    • Indicator 9.4.1: CO2 emission per unit of value added
    • Indicator 9.4.2: Material footprint, material footprint per capita, and material footprint per GDP
    • Indicator 11.6.1: Proportion of urban solid waste regularly collected and with adequate final discharge out of total urban solid waste generated, by cities
    • Indicator 11.6.2: Annual mean levels of fine particulate matter (e.g. PM2.5 and PM10) in cities (population weighted)

Source: kansascityfed.org