How to meet the surging energy demand without needing as much new electricity

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The conversation around energy use in the United States has become . . . electric. Everyone from President Donald The President to the cohosts of Today show has been talking about the surging demand for, and rising costs of, electrons. Many people worry that utilities won’t be able to produce enough power. But a report released today argues that the better question is: Can we use what utilities already produce more efficiently in order to absorb the coming surge?

“A lot of folks have been looking at this from the perspective of, Do we need more supply-side resources and gas plants?” said Mike Specian, utilities manager with the nonprofit American Council for an Energy-Efficient Economy, or ACEEE, who wrote the report. “We found that there is a lack of discussion of demand-side measures.”

When Specian dug into the data, he discovered that implementing energy-efficiency measures and shifting electricity usage to lower-demand times are two of the fastest and cheapest ways of meeting growing thirst for electricity. These moves could help meet much, if not all, of the nation’s projected load growth. Moreover, they would cost only half—or less—what building out new infrastructure would, while avoiding the emissions those operations would bring. But Specian also found that governments could be doing more to incentivize utilities to take advantage of these demand-side gains. 

“Energy efficiency and flexibility are still a massive untapped resource in the U.S.,” he said. “As we get to higher levels of electrification, it’s going to become increasingly important.”

The report estimated that by 2040, utility-driven efficiency programs could cut usage by about 8 percent, or around 70 gigawatts, and that making those cuts currently costs around $20.70 per megawatt. The cheapest gas-fired power plants now start at about $45 per kilowatt generated. While the cost of load shifting is harder to pin down, the report estimates moving electricity use away from peak hours—often through time-of-use pricing, smart devices, or utility controls—to times when the grid is less strained and power is cheaper could save another 60 to 200 gigawatts of power by 2035. That alone would far outweigh even the most aggressive near-term projections for data center capacity growth. 

Vijay Modi, director of the Quadracci Sustainable Engineering Laboratory at Columbia University, agrees that energy efficiency is critical but isn’t sure how many easy savings are left to be had. He also believes that governments at every level—rather than utilities—are best suited to incentivize that work. He sees greater potential in balancing loads to ease peak demand. 

“This is a big concern,” he said, explaining that when peak load goes up, it could require upgrading substations, transformers, power lines, and a host of other distribution equipment. That raises costs and rates. Utilities, he added, are well positioned to solve this because they have the data needed to effectively shift usage and are already taking steps in that direction by investing in load management software, installing battery storage and generating electricity closer to end users with things like small-scale renewable energy. 

“It defers some of the heavy investment,” said Modi. “In turn, the customer also benefits.” 

Specian says that one reason utilities tend to focus on the supply side of the equation is that they can often make more money that way. Building infrastructure is considered a capital investment, and utilities can pass that cost on to customers, plus an additional rate of return, or premium, which is typically around 10 percent. Energy-efficiency programs, however, are generally considered an operating expense, which aren’t eligible for a rate of return. This setup, he said, motivates utilities to build new infrastructure rather than conserve energy, even if the latter presents a more affordable option for ratepayers. 

“Our incentives aren’t properly lined up,” said Specian. State legislators and regulators can address this, he said, by implementing energy-efficiency resource standards or performance-based regulation. “Decoupling,” which separates a company’s revenue from the amount of electricity it sells, is another tactic that many states are adopting. 

Joe Daniel, who runs the carbon-free electricity team at the nonprofit Rocky Mountain Institute, has also been watching a model known as “fuel cost sharing,” which allows utilities and ratepayers to share any savings or added costs rather than passing them on entirely to customers. “It’s a policy that seems to make logical sense,” he said. A handful of states across the political spectrum have adopted the approach, and of the people he’s spoken with or heard from, Daniel said “every consumer advocate, every state public commissioner, likes it.” 

The Edison Electric Institute, which represents all of the country’s investor-owned electric companies, told Grist that regardless of regulation, utilities are making progress in these areas. “EEI’s member companies operate robust energy-efficiency programs that save enough electricity each year to power nearly 30 million U.S. homes,” the organization said in a statement. “Electric companies continue to work closely with customers who are interested in demand response, energy efficiency, and other load-flexibility programs that can reduce their energy use and costs.”

Because infrastructure changes happen on long timelines, it’s critical to keep pushing on these levers now, said Ben Finkelor, executive director of the Energy and Efficiency Institute at the University of California, Davis. “The planning is 10 years out,” he said, adding that preparing today could save billions in the future. “Perhaps we can avoid building those baseload assets.” 

Specian hopes his report reaches legislatures, regulators, and consumers alike. Whoever reads it, he says the message should be clear.

—By Tik Root

This article originally appeared in Grist.

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