Grid Enhancements Are Vital to Power Artificial Intelligence (AI) and Distribute Renewable Energy

It’s easy for the average consumer or businessperson to take electricity for granted. Power is generated in some distant plant, runs through high-power transmission lines (part of “the grid”) that are generally out-of-sight, and jumps into service when you turn on a light switch. Nonetheless, the U.S. and other top economies could easily run up against big constraints to economic growth and digital transformation unless they invest heavily and quickly in expansion and modernization of the highly complex electric grid.

The rising demand for electricity, driven by technological advancements and policy shifts, underscores the urgent need for investment in the U.S. electric grid. Historically stable for decades, electricity demand has spiked dramatically in recent years, with projections indicating the need for increased power generation equal to tens of gigawatts by 2030. (A gigawatt, or GW, is enough energy to power about 750,000 typical American homes.) This shift is attributed to three primary factors: industrial expansion and overall growth in economic output, the booming rise of server farms that run hundreds of thousands of new servers for generative AI (GenAI) and the retirement of traditional energy generation facilities, particular coal-fired and nuclear generation plants.

Industrial growth, some of it boosted by federal and state loans and other financial incentives, has boosted the construction of new manufacturing facilities and the remodeling of existing ones, leading to increased power consumption on a large scale. Simultaneously, server farms (data centers), which are anticipated to account for 8% to 10% of total electricity demand by 2030, are teeming with power-hungry, advanced servers. These facilities, essential for GenAI and other data-intensive technologies, demand substantial power infrastructure—so much so that the owners of these centers, including major tech firms such as Google and Microsoft, are entering into long-term energy contracts for everything from conventional power to renewables to nuclear power. At the same time, the decommissioning of coal, natural gas, and nuclear plants widens the gap between energy supply and demand, posing significant challenges to grid reliability.

Meanwhile, modern, renewable energy power generation facilities, including solar and wind, are expanding rapidly, very often in remote locations. A key challenge for the operators of these renewable energy plants is getting this new power into the grid, as existing transmission lines may be many miles away from the plants. BloombergNEF estimates an addition of 1 terawatt of solar and wind capacity and 221 GW of storage by 2035, straining the grid's ability to meet growing needs. Very substantial upgrades to the existing grid infrastructure are urgently called for. Investments in high-capacity transmission lines and regional energy networks are critical to ensure energy availability during peak demand and, vitally, during extreme weather events.

These developments require unprecedented financial investments. In 2023 alone, capital investments in the clean energy supply chain reached $135 billion, on a broad basis, with projections for a 66% increase in 2024. The Inflation Reduction Act (IRA) of 2022 fueled this trend, offering tax incentives for renewable projects and enhancing their economic viability. Despite this, the industry faces significant hurdles, including permitting delays, supply chain disruptions and escalating costs for key equipment, not to mention a shortage of skilled labor.

As of the end of 2024, daunting backlogs existed in major electrical equipment shipments. Backlogs for grid project permitting are even worse, and operators report that a large number of new renewable energy and storage facilities have been waiting as long as three years for the opportunity to connect to the grid. The global grid expansion and improvement challenge will cause delays, power shortages and continued rising prices for equipment and electric service for years to come. Estimates of the total investment required vary widely, but it would be easy to see the solution taking much more than 10 years and costing in multiple trillions of dollars globally.

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