Banananomics: Electricity Is The New Oil

Electricity Is The New Oil

The new economy is 100% powered by electricity. However, the current production, distribution, and power management cannot meet the increased demand. These problems will be solved over the next five years, but until then, things will get bumpy. Currently, electricity prices in the U.S. are at an all-time high.

In the past, energy prices were determined by a handful of factors such as coal prices, natural gas costs, uranium markets, and weather. However, demand has skyrocketed today due to AI, crypto-mining, and the electrification of many items once powered by fossil fuels. These factors max out the current infrastructure and make power prices more volatile.

The mineral markets significantly affect current energy prices, and crypto prices are correlated with U.S. debt and new policies for clean energy. Shell CEO Wael Sawan stressed that market volatility is not only here to stay but will grow [1]. This is due to the significant infrastructure challenges facing the power industry right now.

Supply

Shifting ideology, government policies, and consumer sentiment require clean energy during skyrocketing demand. This demand is driving the need for critical minerals [2]. These minerals are market-priced and influenced by speculative activity.

For example, Bank of America warns that the "copper supply crisis is here." In the first quarter of 2024, primary nickel producers significantly increased their output, leading to an oversupplied market, while mined nickel producers reduced their supply [2]. Nickel is used for electric vehicle batteries and solar energy storage.

As the world transitions from fossil fuels to renewable energy, that power has become more volatile. This is because peak solar power generation coincides with the lowest residential electricity demand during the midday [3]. When power demand begins to surge after 6 p.m., solar output begins to fade.

To cope with the natural and weather-dependent solar power, the grid needs much more battery storage than currently available to smooth out the difference in peak output and demand and the significant power price variations. Power systems and grid operators must often manage negative prices when solar output peaks during the day.

Developers and power plant owners plan to add 62.8 GW of new utility-scale electric-generating capacity this year, up 55% from the 40.4 GW added last year. According to the U.S. Energy Information Administration (EIA) forecasts, solar will account for the largest share of new capacity in 2024, at 58%, followed by battery storage, at 23%.

U.S. battery storage capacity is set to nearly double in 2024 as developers plan to add 14.3 GW to the existing 15.5 GW this year. California and Texas are leading the way in battery storage additions due to the rapid growth of variable solar and wind capacity in these two states.

Meanwhile, Sam Altman has invested $375 million in Helion Energy, the fusion provider contracted by Microsoft. "This first fusion power plant, for which the feasibility is being assessed in Chelan (County), will produce electricity that will go to the grid; Constellation will serve as the Power Marketer for Helion's first customer, Microsoft," explains Jessie Barton, Helion communications director [6].

Distribution

NVIDIA founder and CEO Jensen Huang said the electric grid and the utilities managing it will play an essential role in the next industrial revolution, driven by AI and accelerated computing [4]. However, Huang notes, "The greatest impact and return is applying AI in delivering energy over the grid."

Today, electric grids are one-way systems that link a few big power plants to many users. They'll increasingly become two-way, flexible, and distributed networks, with solar and wind farms connecting homes and buildings with solar panels, batteries, and electric vehicle chargers. However, the concern is securing the electric grid as it transitions from one-way systems to distributed networks [5].

The National Interest Electric Transmission Corridor report (NIETC) indicates areas of grid concern across the U.S. Areas such as the mid-Atlantic region are of grave concern for the Department of Defense (DOD) due to the inability to consistently move electricity from one part to the other. In Texas, there is a similar issue with distributing power from wind turbines in the north to large populations in the south.

Demand

Analyst firm Omdia predicts that by 2025, most network application traffic will involve AI content generation, curation, or processing. By 2030, it expects nearly 75% of network traffic to incorporate AI, with rapid growth in video and image content [5].

"This is very quickly becoming an issue of, don't get left behind locking down the power you need, and you can figure out the climate issues later," said Aaron Zubaty, CEO of Texas-based Eolian, a significant developer of clean energy projects.

PJM, the largest power market grid in the world (covering 65 million customers in the Mid-Atlantic region, including Pennsylvania, Ohio, and West Virginia), is seeing a massive increase in data centers. PJM expects that 11 GW (gigawatts) of additional electricity will be needed for new data centers in northern Virginia alone by 2030, representing more than 40% of the state's current peak demand.

In Texas, the Electric Reliability Council of Texas (ERCOT) expects more than 50% of new demand from increasing crypto-mining operations and data centers. Adding to an already stressed grid is the electrification of lawn and garden tools. Lawnmowers, leaf blowers, and the like are increasingly becoming electric, with fewer options for gas models [1].

Conclusion

The energy grid in the U.S. and most of the world is being pulled and pushed by clean energy, record demand, and aging infrastructure. While AI is taking the news, cryptocurrencies are responsible for massive power use. These forces require power companies to rethink how energy is produced, delivered, and consumed.

Solutions are being created to manage the building energy crisis, but most are several years away. This means that high electric costs and increased volatility will be the norm immediately. However, this also creates opportunities for investors of energy companies, power traders, and commodities markets.

References:

1. https://banananomics.co/volatility_rising_in_energy_markets

2. https://banananomics.co/interesting_drivers_of_spectacular_electric_prices

3. https://banananomics.co/the_eye_opening_need_for_energy_storage

4. https://banananomics.co/nvidia_turns_the_tables_with_innovative_power_grid_tech

5. https://banananomics.co/cybersecurity_concerns_for_new_electric_grid

6. https://banananomics.co/thanks_to_ai_fusion_is_here

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