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Key takeaways
- US power demand was nearly flat for more than a decade, with consumption rising 2.9% between 2010 and 2023 or 0.2% annually
- Now, data centers, EVs, energy intensive industry, and building electrification are set to boost demand by 70GW from 2023-30
- Rising renewable capacity, more coal retirements, and soaring demand could test regional grid stability in the medium term
After a decade of stagnation, US power demand is rising…
US electricity demand has been nearly flat for more than a decade, with total consumption rising just 2.9% between 2010 and 2023 or 0.2% YoY on average. Power demand stalled partly because of sluggish economic activity in the early 2010s and efficiency gains at the residential, commercial, and industrial levels, which were facilitated by LED lighting, more efficient appliances, and improved insulation among other factors. But power demand is also affected by weather, which was milder over the past year and masked underlying demand strength. In fact, on a weather adjusted basis, US electricity demand increased YoY in 2023, and growth should continue into 2030, driven by data centers, EVs, energy intensive industry, and other dynamics.
…and should increase by 70GW or 15% from 2023-30…
After rising 13 GW in 13 years, total US electricity demand averaged 457GW or 4000TWh in 2023, but we expect demand to accelerate, adding 70GW (~610TWh) between 2023-30. The commercial sector should drive demand growth (35GW or ~310TWh), led by a rapid expansion in data centers (25GW or ~220TWh), which have leapfrogged EVs to become the most immediate and meaningful source of growth. Even though EV adoption has faced headwinds recently, we still expect electrification to play a role in the medium term, with more than 10GW (~90TWh) of incremental charging demand across passenger and commercial vehicles. Other sources of demand growth are more obscure and difficult to assess, yet we see potential for more than 10GW of power demand growth across batteries, semiconductors, and other energy intensive sectors.
…while rising renewable capacity challenges grid stability
Grid stability concerns have been rising due to accelerating renewable capacity growth and more than 100GW of coal plant retirements in the past decade. New gas fired capacity concealed these changes until recently, but the pace of gas additions is slowing just as renewable capacity additions and power demand accelerate. Through 2030, another +50GW of coal could be retired, while gas additions remain below 10GW. Meanwhile, wind and solar should add 100GW and 240GW respectively, contributing to net capacity growth of about 290GW. However, after adjusting for the intermittency of renewables, potential incremental deliverable power looks more like 55-60GWa, but new behind the meter solar could deliver an another 15GWa. With power demand expected to rise about 70GW through 2030, grid stability could be tested regionally, and the call on thermal power may be insatiable at times.
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Power sector loading pains
US power loads have finally started to rise after a decade of stagnation…
Electricity demand in the US has been nearly flat since the mid-2000s, as limited industrial growth and the rise of LED usage, improved appliance efficiencies, and other factors helped keep demand growth in check (Exhibit 3). After declining sharply during the pandemic, electricity demand recovered strongly in 2021-22 but struggled in 2023 as mild weather (Exhibit 4). Despite the short-term hiccup, several structural shifts in the US economy should propel demand higher into the end of the decade.
…and demand growth has occurred on a weather adjusted basis
Electricity demand, like thermal fuel consumption, is influenced by the weather. Warmer weather during summer months typically leads to higher AC usage and thus power demand. Similarly, during winter, electricity loads are rise as temperatures get colder and electric heating ramps up (Exhibit 5). This relationship should increase as more US building use electric heat and heat pumps, a shift that is being encouraged through federal, state, and local policies and subsidies. Although actual loads decreased YoY in 2023, weather adjusted loads have continued to increase YoY. Within the power stack, weather adjusted power sector gas burns have shown an even more pronounced increase YoY (Exhibit 6), which likely reflects coal retirements and the rapid deployment characteristics of combined cycle gas plants to supplement intermittent renewables generation (see Solar shines bright and More wind power won't be a breeze).
Several sectors should drive electricity demand growth into 2030
Policy changes and technological innovation have set the stage for strong US electricity consumption growth over the medium term. The IRA, the CHIPS and Science Act, rising fuel efficiency standards, and other dynamics are driving a massive increase in US industrial and manufacturing investment. Furthermore, the AI revolution is spurring organic investment in data centers, semiconductors, and other technology subsectors. Data center electricity demand growth dominates the landscape through 2030 and could add as much as 25GW or 220TWh of incremental power demand over the next seven years (Exhibit 7). Electrification of the vehicle fleet should also contribute more than 15GW or 130TWh through charging and from electricity used to produce new EV batteries. Other areas of the economy should also support power demand growth. In total, we think electricity consumption could rise as much as 70GW (~610TWh) through 2030, or a 2.1% CAGR (Exhibit 8).
AI catapulted data centers to the forefront of power demand growth…
Five years ago, data center power demand appeared to be a growing, yet predictable source of power demand. However, advances in Artificial Intelligence and the rapid increase in power usage to train and deploy those systems caught grid operators off guard. Indeed, load growth estimates have increased substantially across nearly every ISO. PJM's Dominion zone, which includes Loudoun County, the most concentrated data center hub in the world, has seen 10-year average load growth estimates rise from 0.5% in 2020 to 5.5% in 2023 (Exhibit 9). AI data center demand has sprouted up almost overnight and some are projecting a 4x increase in AI data center power demand at hyperscaler facilities by 2030 (Exhibit 10).
…and growth is expected to continue at a rapid pace into the 2030s
Data center power demand estimates put forth by consultants and industry participants point to global data center power demand nearing 60GW in 2023 or about 1-2% of global electricity demand. By 2028, one industry participant suggests data centers will require an additional 36GW or 62% growth (Exhibit 11). The subset serving AI is expected to rise even faster, growing nearly 300% over the same timeframe. Meanwhile, our equity research colleagues project very robust growth in AI server unit sales through 2027 (see Artificial Intelligence set be a key driver for server market growth) (Exhibit 12).
Yet, there is uncertainty around the evolution of AI power demand…
Different stages of the AI development process require substantially different amounts of energy, with training being the most energy intensive stage by a large margin (Exhibit 13). Once an AI model is trained and deployed, the energy cost of each inference, or using the model to make predictions or draw conclusions, is quite small. For many AI models, it takes millions of inferences to use the same amount of power as it takes to train the AI model. Some have argued that once all AI models are trained, energy use from the sector could fall dramatically. In theory, this may be true, but AI sector appears to still be in the early stages of development, with significant growth, and thus training, ahead. Furthermore, like software or any other type of technology, new versions of specific AI programs will likely roll out in the future, weakening the validity of that argument. AI is also expanding into different use cases, some of which are significantly more energy intensive than others. For example, image generation inferences use substantially more energy than image classification inferences (Exhibit 14). Myriad use cases and the rapid development of AI technology make it incredibly difficult to predict the pace of AI energy demand growth.
…and the location of new AI demand relative to surplus power supply
Power could eventually become a constraining factor in AI development. In fact, the concentration of data centers in Loudoun County has created challenges for the utility there (Exhibit 15), leading to delays as power generation is unable to keep pace with demand. The simple solution would be to spread out into other areas, but proximity and latency are important for many data center operators and contributed to the existing concentration in Loudoun County. Given the energy intensive nature of AI data centers, it would seem logical to establish new hubs in areas where low or negative electricity prices occur (Exhibit 16), but many of those pricing nodes don't have enough power to meet new data center needs. Instead, other new hubs are sprouting up in places like Columbus, Ohio, and some data centers are bringing power plants behind the meter to bypass grid connection issues.
AI demand could add 25GW of US load by 2030, but growth highly uncertain
We see US data center power demand rising steadily at a pace near 12% annually from an estimated base of 21GW (184TWh) in 2023, with incremental electricity consumption eventually hitting 25GW (~220TWh) by the end of the decade (Exhibit 17). In an unconstrained world, a faster pace of growth might occur, but the more likely outcome in our view is that logistical constraints lead to slower growth. Over the medium term, the industry seems likely to shift more toward hyperscaler AI data center ownership than enterprise ownership (Exhibit 18).
Electric vehicles are another source of load growth in the US…
Electrification of the US vehicle fleet is another source of incremental power demand over the medium term. The pace of EV adoption varies widely by state, with California and New York leading the way and other states, especially in the middle of the country, lagging behind. Infrastructure and range anxiety are two key factors behind the uneven adoption, yet the pace of EV sales remains on a strong upward trajectory (Exhibit 19). US EV sales have grown from about 325k units in 2020 to nearly 1.5mn units in 2023, and current estimates of US light duty electric vehicle power demand are estimated to have risen to nearly 1.6GW last year (Exhibit 20).
…but adoption rates and technology improvements are highly uncertain…
While total US EV unit sales have continued on a strong upward trajectory, the rate of EV penetration, as measured by % of total sales, appears to have slowed recently, while adoption in China continues to push higher (Exhibit 21). Policy, protectionism (especially in the US and Europe), consumer behavior, and concerns about the auto industry's ability to meet future EV demand growth make it difficult to forecast EV sales, which is reflected in the dramatic changes in the IEA's EV sales penetration in recent years (Exhibit 22). According to its latest STEPS scenario, global EV sales penetration should reach roughly 35% by 2030, similar to our in-house estimates for US uptake.
…and could lead to substantially different paths for peak and average loads
Forecasting the impact of US EV sales on power generation is inherently challenging and depends on myriad factors. Nonetheless, we assume the LDV EV fleet tops 26 million vehicles by 2030, should lead to EV electricity demand topping 9GW (Exhibit 23). That said, the pace of sales is highly uncertain. Moreover, studies have shown that EV owners typically put fewer miles on those cars the ICE vehicles. It maybe that future EVs log more mileage because battery technology and charging infrastructure improves, which means more electricity used per EV. This, along with the size of the EV fleet, will not only influence the total amount of electricity consumed by EVs, but also the impact of EV charging patterns on intraday electricity demand (Exhibit 24).
Medium and heavy-duty EV uptake is slower but additive
In addition to LDVs, the US grid will also have to contend with rising electricity demand from medium and heavy-duty vehicles too. The pace of adoption of these vehicles trails considerably behind LDVs (Exhibit 25), but sales are rising at a rapid pace. The difference between commercial vehicles and passenger vehicles is the mileage they incur daily is typically higher and vehicle weight can be much greater (Exhibit 26), meaning more electricity demand per vehicle, all else equal. Admittedly, EV technology is not sufficiently advanced for the displacement of ICE tractor trailers with EVs, but EV delivery vehicles are proliferating.
Building electrification is also a source of load growth…
Another source of electricity demand growth over the medium term is the US building stock, which is primarily comprised of housing and commercial buildings. The Biden administration has set ambitious goals to decarbonize this sector, but EIA data reflecting these efforts takes several years to produce. Census data, which reflects new construction, does show a small increase in homes with electric heating (Exhibit 27) in 2021-22, which mostly occurred before the IRA was passed. Delayed data from the EIA reflecting homes with heat pumps was also rising even before IRA subsidies kicked in (Exhibit 28), which suggests heat pump adoption will likely accelerate.
…but efficiency improvements should limit load gains…
Monthly retail sales of electricity to residential consumers grew 11TWh between 2015 and 2022 or roughly 7% (Exhibit 29), far outpacing the other electricity growth gains. In Texas monthly retail sales grew 17% between 2015 and 2022. Idaho, Montana, and New Mexico each grew over 20%. These gains however mask declines at a household level. Between 2015 and 2022 average monthly retail consumption of electricity declined marginally (Exhibit 30). In California they fell roughly 4% as more efficient technology entered homes. The gains in overall residential electricity consumption instead came from an expanding population and number of households as Millennials reached early adulthood. As the next, smaller, generation becomes homeowners, these year-on-year gains could be tempered.
…and there is a long way to go, especially for heating and cooling
Energy use in residential and commercial buildings comes primarily from electricity, but there is still significant room for displacement of heating fuels (Exhibit 31). In residential buildings, nearly 46% of energy use came from gas, oil, propane, or other sources, and these sources account for 40% of commercial buildings in recent years. Among commercial sector, the largest area for improvement comes from larger buildings. Indeed, more than 60% of commercial buildings larger than 10,000sq feet in size use natural gas (Exhibit 32), so the opportunity set is large. However, the efficiency of natural gas heating is difficult to compete with, so electricity may not be an economic alternative, especially for buildings that are larger or in more extreme climates.
Battery plants could add more than 3.5GW of demand by 2027
Plants needed to produce EV batteries for the energy transition also require a substantial amount of power. In the US, our equity research team is tracking battery plants that are scheduled to enter service before 2028 (Exhibit 33) (See Megaprojects: detailed scope and timelines; some delays but still coming). US plants expected online during 2024-27 are expected to be able to produce upwards of 620GWh of batteries, which could add up to more than 3.5GW of electricity demand from the factories (Exhibit 34). New greenfield projects or brownfield expansions could add to this power demand by the end of the decade too.
Semiconductor plants and hydrogen contribute to growth
The CHIPS Act and a new wave of demand from the AI industry led to a flurry of US semiconductor plants being announced in recent years (Exhibit 35). Admittedly, these plants have faced delays and uncertainty regarding subsidies, but several should be commissioned before the end of the decade. Semiconductor production is an energy and water intensive process and requires coordination with utilities to ensure the plants receive adequate resources for operation. In total, new build semiconductor plant electricity demand should exceed 2GW before the end of the decade.
The US grid could be squeezed if 70GW of demand growth is realized
Grid stability concerns have been rising due to accelerating renewable capacity growth and more than 100GW of coal plant retirements in the past decade. New gas fired capacity concealed these shifts, but the pace of gas additions is slowing just as renewable capacity additions and power demand accelerate. Through 2030, another +50GW of coal could be retired, while gas additions remain below 10GW. Meanwhile, wind and solar should add 100GW and 240GW respectively, contributing to net capacity growth of about 290GW (Exhibit 36). However, after adjusting for intermittent capacity factors, potential incremental deliverable power looks closer to 55-60GWa (Exhibit 37), and new behind the meter solar could deliver an another 15GWa or 130TWh. With power demand expected to rise about 70GW or ~610TWh through 2030, grid stability could be tested regionally, and the call on thermal power may be insatiable at times.
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Research AnalystsGlobal Commodity Research BofA Europe (Madrid) Â Francisco Blanch Commodity & Deriv Strategist BofA Europe (Madrid) +34 91 514 3070 Â Michael Widmer Commodity Strategist MLI (UK) +44 20 7996 0694 Â Warren Russell, CFA Commodity Strategist BofAS +1 646 855 5211 Â Danica Averion Commodity Strategist MLI (UK) +44 20 7996 2325 Â Rachel Wiser Commodity Strategist BofAS +1 646 743 4069 Â Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. Investors should have experience in relevant markets and the financial resources to absorb any losses arising from applying these ideas or strategies. |
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