So I’ve been trying to figure out where climate and energy policy might go from here. And one story that I keep coming back to is the flashing red lights around what could become a serious electricity affordability crisis.
It’s now widely understood that electricity demand is rising in the United States for the first time in a generation. The Energy Information Administration projects that electricity use will grow 1.7% in the next few years, after increasing by just 0.1% per year from 2005 to 2020. That growth is projected to come from new data centers, new factories, the (now) slow(er) but (still) steady adoption of electric vehicles, and population growth.
What is less well understood is how poorly the United States is prepared to match this rise in electricity demand with an equivalent increase in supply. To some degree, American electricity prices are already rising: So far this year, utilities have received or requested permission to increase customers’ bills by $29 billion, according to a July report from PowerLines, a think tank and advocacy group. That’s a large number in its own right, and it’s more than twice as much as had been approved at this time last year.
But when you look across the power system, virtually every trend is setting us up for electricity price spikes:
- The supply chain to build new natural gas power plants is backed up. Virtually all new utility-scale gas turbines are spoken for until the end of this decade, as Heatmap News covered in February.
- U.S. natural gas supplies will come under more strain in the next few years as fossil fuel companies export more of the fuel abroad. From 2024 to 2028, North America’s liquified natural gas export capacity is projected to double.
- Many of the key components to build more grid infrastructure — such as copper or steel — have surged in cost due to Trump’s tariffs and self-induced trade uncertainty.
- The federal government has become a less stable fiscal and financing partner for energy producers and distributors. On Wednesday, Energy Secretary Chris Wright killed a government loan guarantee for the Grain Belt Express transmission project. Why? “To ensure more responsible stewardship of taxpayer resources,” but also because President Trump asked him to.
On top of all this, of course, the Trump administration has made it much more uncertain which new solar, wind, and battery projects will be able to secure tax credits — and with them, secure bank financing.
None of these trends alone would guarantee price increases or electricity supply constraints. But taken together, they reveal an electricity system that is coming under a variety of strains.
In the 2010s, cheap natural gas and technological advances in energy efficiency pacified much of the power system. We won’t have the same luxury this decade.
What this means for climate policy
This is all going to be bad for the economy, bad for the climate, and bad for climate policy.
It’s a setback for the U.S. economy because, as President Trump somewhat alluded to in his second inaugural address, energy is a key input to virtually every other economic process, including manufacturing. But it’s especially bad for climate policy. The dominant plan to decarbonize much of the U.S. economy is to “electrify everything” — cars, appliances, home heating, and even many industrial processes. Americans will be far less eager to electrify everything if electricity is expensive.
If energy price hikes do arrive, Democrats are going to have a relatively straightforward time communicating about them in a narrow political sense. The story is just too simple: Democrats passed a law to encourage clean energy called the Inflation Reduction Act. Republicans repealed it. Energy prices inflated. QED.
That story alone might be too contrived, but the evidence we have suggests that OBBBA will raise energy bills. The REPEAT Project at Princeton University — led by Jesse Jenkins, my Shift Key podcast cohost — has a new report out projecting that the One Big Beautiful Bill Act will increase Americans’ electricity bills by $165 a year by the end of the decade. (If the law is allowed to stick around, and in the absence of intervening policies, it could raise bills by hundreds of dollars a year by the middle of next decade.)
OBBBA’s explosion of the federal deficit will make the situation worse: By expanding the deficit for such little public gain — that is, merely to memorialize earlier tax cuts, not even to make new ones — the Federal Reserve will have a more difficult time cutting interest rates in the future. That will in turn make it even more difficult for utilities and developers to finance new energy projects.
The political story will be so compelling here, I think, that Democrats will come under a lot of pressure to reinstate the wind and solar tax credits. And maybe they should do that — it could make sense as part of a larger energy or permitting deal. But stacking more solar and wind on the grid will not on its own lower people’s electricity bills.
Going into 2028, Democrats will need an actual plan to stabilize or cut electricity costs. They will need ideas about how (and whether) to speed up permitting, restructure wholesale power markets, and build new power plants in order to stabilize the power grid.
One thing that’s already clear is that in this inflationary environment, states like New York with publicly owned power authorities are able to intervene more forcefully in their own power markets than states that lack such capability. That’s because the state itself can act to build its own large-scale power plants. New York Governor Kathy Hochul recently directed the state’s power authority to build a new nuclear power plant upstate in order to grow the supply of zero-emissions electricity. Using their state own power authorities, governors in other states — or even the federal government, with an entity like the TVA— could take a similar step.
The bear case
With all that said, I’ve been trying to come up with a scenario under which these price hikes will not materialize. In the late 2010s, for instance, America’s liquified natural gas exports surged essentially from zero, but domestic consumers didn’t see significant price hikes because drillers increased gas production to match the exports. Maybe that could happen again. And maybe utilities will — and this would, to be clear, be horrible for the climate — run their aging coal plants much more than they once anticipated doing.
Or maybe load growth won’t be as bad as we think. When Jesse and I spoke to Peter Freed, Meta’s former director of energy strategy, for Shift Key, he told us that the current data center boom is different from any previous buildout because of the presence of speculators. For the first time, he said, speculative data center developers are buying up prospective sites and requesting utility-scale hookups with the expectation that they will find a tenant for the data center in the future. In other words, the demand side of the electricity system is filled with an unusual amount of froth at the moment.
We also know that, more generally, the demand side of the power system is a mess. In the past few years, climate analysts have gotten used to talking about the power grid’s interconnection queue — that is, its supply side. But the demand-side queue — the process that lets new data centers, factories, and other new electricity users connect — is even more broken. In some jurisdictions, it’s little more than an Excel file that projects move up and down within as local politics requires.
We also know that one source of new demand — one planned factory or, more often, one data center — will sometimes apply to hook up to multiple states or utilities at the same time. It will get utilities to bid against each other, suss out the best construction sites and power rates, and only relatively late in the process make a final decision about where to build.
So if I were putting together a bear case for electricity demand, I would start here. Maybe aggressive data center speculators are bidding in multiple utilities, driving up projections across many states. That’s causing utilities to freak out about their supply, leading them to project the need for a lot of new investment — and, with it, a lot of electricity rate increases. But as data center speculators actually begin to build (or abandon) projects — and as some of the air inevitably comes out of the AI boom — some of this projected demand will start to evaporate. Perhaps the data centers that do get built will find ways to reduce their power usage, too.
Even this story won’t fully eliminate load growth on its own, though. Data centers make up the largest share of new electricity demand, but even then, they’re not the majority of it. The rest comes from, roughly, new factories, the slow electrification of the vehicle fleet, and new residential construction. But let’s say the One Big Beautiful Bill Act succeeds in hobbling the electric vehicle sector in the United States, many EV and battery factories get canceled, and fewer Americans buy EVs overall. Calculate in a mild recession, too, since all the AI and EV investment will be drying up.
In that world, most new sources of power demand really will be in abeyance. That’s how some of these power projections might not come true. But in most other scenarios, it’s time to hold on — and for blue-state leaders to think about how they can find cheap, zero-emissions electrons, as soon as possible.
Stanford.
