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How to Balance Climate Goals with Electricity Shortages

Boris Leshchinskiy and Christopher Dann

Is there an electricity shortage in the U.S.?

In February 2021, Winter Storm Uri, a major North American winter and ice storm, caused power blackouts across Texas. The gas pipes supplying power plants froze, and wind turbines stopped spinning, impacting electric heating for customers of ERCOT, the state’s grid operator.

The storm was an anomalistic event that highlighted the dependence of electric heating on energy networks. To better serve customers in the future, grid operators and regional transmission organizations (RTOs) are evaluating how to climate-proof power supply as electricity demand is rising.

Publicis Sapient partnered with Sector & Sovereign Research (SSR) to examine U.S. energy supply fundamentals from the bottom up by facility technology and commissioning date. Our analysis suggests almost two-thirds of U.S. dispatchable generation capacity is likely to retire by 2035, well above forecasts from the Energy Information Administration (EIA). Over the same period, the adoption of electric cars and the widespread advancement of electrification policy will drive peak load well above the historical maximum (789 GW) observed in 2007 and 2012 (see Exhibit 1).

Exhibit 1: U.S. Dispatchable Generation Capacity vs. Peak Demand

(GW, see note 1)

Bar graph shows an increasing demand and a decreasing supply of dispatchable generation from 2020 to 2035.

As U.S. energy security becomes more precarious, stakeholders must set aside ideological differences to collaborate on practical solutions that balance long-term climate goals against near-term economic and physical risks facing ratepayers.

Meeting climate goals with global energy consumption

Reducing carbon emissions and underwriting energy security are key priorities for the electricity industry. Stakeholders are balancing these goals with an awareness of potential supply and demand capacity restraints.

Fossil fuel steam turbine generation capacity is expected to slow down and retire over the next 15 years in favor of more environmentally friendly electricity generation and alternative energy sources. Most plant facilities today are designed to operate for 30-50 years and were commissioned between the late 1960s and early 1980s. A closer examination of the individual facilities that comprise the dispatchable generation portfolio revealed that availability timelines and today’s capacity are disproportionate.

Capacity retirements are likely to outpace current expectations, even after adjusting plant operating timelines for upgrades and other investments that will extend design lives.

Capacity retirements are likely to outpace current expectations, even after adjusting plant operating timelines.

Without significant acceleration in upgrades and other plant modernization investments, firm capacity is expected to fall below peak U.S. demand levels as early as 2030 (see Exhibit 2). Replacing retired capacity exclusively with renewables is uneconomic due to the huge supplemental investment required for excess capacity and energy storage that will offset the intermittency and availability risk of wind and solar generation.

 

Exhibit 2: Net Forecast – U.S. Dispatchable Generation Capacity

(2020 actual GW, totals adjusted for estimated retirements/additions in out years; see notes 1, 2)

Bar graph shows an estimated steady decline in dispatchable generation additions and capacity from 2020 through to 2040.


Historically, an average of around 11 GW/year has been added to dispatchable generation capacity in the U.S. To fill the looming supply gap, annual replacement levels will need to roughly triple (~29 GW/year) in order to offset what we expect in retirements.

Will electric cars increase electricity consumption?

While generating capacity rotates away from traditional technologies, stakeholders are simultaneously negotiating a demand shock caused by policies aimed at disincentivizing natural gas in favor of building electrification and by the accelerated adoption of electric vehicles (EVs). While the pace of EV adoption varies across the U.S., experts largely agree between 20-40% of light-duty vehicles (LDVs) will be electric by 2035 (see Exhibit 3). Overlaying the demand effects of LDV charging would increase gross energy demand by 5-10%, which appears modest at first glance.

 

Exhibit 3: California LDV Fleet Growth Forecast, and Est. Proportion of EVs

(M, 2010 – 2021 actuals, 2022 – 2030 forecast)

Bar graph shows a steady increase in the number of non-EV LDVs and EV LDVs in California from 2010 to 2030.

However, the picture is complicated by the uneven shape and seasonality of demand during the typical day, or across the calendar year. For the moment, let us set aside the effects of increased base demand due to building electrification and examine the impact of EVs alone. If just 5% or 10% of LDVs were charging simultaneously, and we layer that atop historical figures for hourly load, the resulting demand would exceed reserve capacity levels (firm capacity less 15% margin) in most of the U.S.’ regional power markets (see Exhibit 4).

 

Exhibit 4: % Hours Historical Peak Load (see note 1) + EV Charging Would Exceed Firm Capacity

('22 firm capacity less 15% reserve by RTO; assumes charging at 10kW)

1) Hourly load over 2010-2021
Source(s): CAISO, PJM, MISO, ISO-New England, US Department of Transportation, NERC, SSR –Eric Selmonand Hugh Wynne, Publicis Sapient analysis

How to respond to an electricity shortage

The trends at work in the U.S. electricity generation mix signal that capacity shortfalls are likely to significantly outpace current projections. Our bottom-up analysis of the U.S. fleet suggests that 63% of today’s firm capacity will retire by 2035, and filling the gap between supply and growing demand will require tripling recent replacement levels of dispatchable resources. Filling this gap with renewables is impractical given intermittency challenges and the high relative cost of battery storage.

At the same time, gross electricity demand is expected to increase 10% by 2030 from EV adoption alone. If overall power demand follows traditional seasonal patterns and we assume that just 5-10% of LDVs were charging coincidently, every U.S. regional transmission organization would fail to maintain reserve margins at some point during the year. Furthermore, for several regional operators, those capacity challenges are more concerning during the winter months—contrary to the sector’s popular focus on meeting summer demand.

A grid operating within reserve margins is inherently less reliable and more exposed to failure, particularly during extreme weather events. The approaching intersection of these supply and demand trajectories will present stakeholders with many challenges, but it will also create opportunities for solutions that balance climate goals and operational risk. These include services and channels for incentivizing residential customer demand response, as well as creative solutions for commercial and industrial partners that have their own emissions reduction goals. Beyond their direct customers, system operators must also bring regulators and policymakers along on the journey to ensure a uniform understanding of the generation supply tradeoffs required to ensure system reliability.

A less reliable, more volatile and more expensive U.S. power system will hold challenges but also create opportunities for new solutions for industry participants:

  • Customer solutions: Expanded demand for energy services to manage costs and reliability, including distributed generation, storage, backup power and demand response
  • Utility capabilities: Utilities will need new and enhanced capabilities to balance power demand with supply, in real time, while meeting customer needs and balancing affordability with system investments
  • Grid solutions: Adapting the grid to this situation and integrating more distributed generation, storage, backup power and energy services will require a smarter, more agile system enabled by advanced analytics and artificial intelligence
  • Power market solutions: A more volatile market creates opportunities for trading as well as new asset investments (e.g., gas peakers, storage)
  • Policy support: The supply and demand imbalance will create political challenges but also an opportunity to work with regulators and policymakers on new solutions

SSR Research Reports Cited:

Eric Selmon and Hugh Wynne, June 7, 2021, The Looming Crisis in Generation Capacity

Eric Selmon and Hugh Wynne, September 1, 2021, The Clean Energy Transition: A Primer for PMs, Part 2 – The Rising Cost of Renewable Power

Eric Selmon and Hugh Wynne, February 15, 2022, The Electrification of Light Duty Vehicles Will Increase Electricity Demand by a Quarter

Eric Selmon and Hugh Wynne, February 28, 2022, How Electric Vehicles Will Disrupt the Grid

Eric Selmon and Hugh Wynne, April 25, 2022, The Stability of America’s Largest Power Grids Is at Risk From EV Charging Loads, Especially During Harsh Winter Weather



Tripp Fried
Tripp Fried
Associate Managing Director