As Energy Demand Spikes, Balancing Supply and Decarbonizing Becomes Challenging

Demand for electricity has risen rapidly in the past year, driven by the explosive growth of Artificial Intelligence (AI)-focused data centers, the continuous push of electrification, and the rise of domestic manufacturing. In 2022, global data centers consumed an estimated 460 terawatt-hours (TWh), and their total consumption is anticipated to exceed 1,000 TWh in 2026, according to the International Energy Agency (IEA) – roughly equivalent to the electricity consumption of Japan.

Power producers are acting quickly to meet this escalating demand. In today’s market, they’re also challenged to help energy customers meet their commitments to reduce emissions and reach ambitious net-zero targets.

This significant growth in power demand comes amid uncertainty over key U.S. government incentives, such as the Inflation Reduction Act (IRA)’s 45V and 45Y tax credits.  Measures that help lower the sector’s emissions have enormous potential to drive progress on decarbonization, but power producers and OEMs are still missing the final rules and clarifications. At the same time, the Environmental Protection Agency (EPA) is facing legal disputes over the required reductions it has proposed for power plant emissions, which is creating further ambiguity.

Power providers are now facing the challenge of scoping, commissioning, and starting decades-long complex projects without knowing the terms of the final policies, creating doubt about the best approach not only for the developer, but also for the off-taker, and the power purchaser.

All this serves as a pointed reminder of how dynamic the energy transition is and will continue to be in the years ahead. The shift to low-carbon and carbon-free solutions requires forethought and meticulous modeling combined with continuous trendspotting and adaptability. To achieve decarbonization targets amid the uncertainty, companies need to embrace a hybrid approach: deep planning combined with nimble pivoting, collaborating with a range of partners at every step.

How do you balance seemingly incompatible approaches? Start with the following considerations:

1. Plug into the data revolution

The rapid development and implementation of artificial intelligence, machine learning, and deep learning has been a surprise to many. “The chief obstruction to data center growth is not the availability of land, infrastructure, or talent – it’s local power,” said Pat Lynch, executive managing director and global head of Data Center Solutions for commercial real estate firm CBRE, at this year’s Data Center World conference.

As more companies and consumers utilize AI applications, the demand for data and computing power to crunch that data will continue to climb, spurring a proliferation of data centers. These centers require significant energy to power the technology and to cool the facilities. Currently, data centers account for about 1-1.5% of global electricity use, according to the IEA. It predicts that by 2026, global electricity consumption from data centers, AI, and the cryptocurrency sector could double.

While no one knows the exact growth rate or the next technological evolution, energy providers should plan for the continuation of the data revolution. At the same time, they have an opportunity to apply machine learning to optimize their plants’ performance, improve efficiency, and lower emissions.

2. Harness increasing domestic manufacturing demand

National policies such as the Build America, Buy America Act, part of President Biden’s Bipartisan Infrastructure Law, are raising the demand for domestic manufacturing – another significant driver of energy demand that energy providers should be aware of and plan for.

Since the IRA passed, the private sector has announced more than $110 billion in new clean energy manufacturing investments, including more than $70 billion in the electric vehicle (EV) supply chain and more than $10 billion in solar manufacturing. Pivots will occur at the local or regional level as providers zero in on manufacturing growth where they operate and identify opportunities to power these plants.

Texas is among the states where renewable energy grew the most. In the first year of the IRA, Texas had more than $10 billion in investment, and the amount of new wind, solar, and battery storage proposed for the grid increased significantly.  According to the Renewables on the Rise 2023 report, Texas produced more renewable energy than any other state and 55% more than California.  ERCOT, the independent system operator that operates in Texas, is also forecasting an increase in new large loads from AI, data centers, industrial electrification, hydrogen plants, and electric vehicles. In total, ERCOT anticipates about 152 GW of new load by 2030.    

Georgia has seen a recent boost as well. Since the IRA, more than $15 billion worth of investment has been announced in the state – the majority of which is going toward its expanding electric vehicle sector. Since 2018, e-mobility projects have announced over $27.3 billion in investments in Georgia.

Then there’s Michigan, where manufacturing is the largest economic sector. The state created nearly 138,000 new manufacturing jobs from 2009 to 2022 — an increase of 30% — outpacing all other states due to favorable tax policies and workforce talent.

These regions – and many more—present opportunities for energy providers to meet growing energy demand by focusing on local needs.

3. Decarbonize in phases

Amid the growing and evolving demand for energy, providers can’t lose sight of the collective imperative: the ongoing decarbonization of the industry.

As tempting as it may be to take a “wait and see” approach to find the ideal technology, the ideal incentive, or the ideal customer to decarbonize, it’s not realistic. What companies are seeing today – a dynamic market shaped by a contrast of high-tech needs that sometimes clash with the imperative for net zero – illustrates that there will never be a perfect scenario. The energy transition must endure ever-changing conditions, and providers should adopt the solutions available today with the understanding that decarbonization will occur in stages. The right approach will change over time as the technology develops.

That is what’s happening with advanced-class gas turbines and the integration of either post-combustion carbon capture or hydrogen. Mitsubishi Heavy Industries, a global leader in the carbon capture market, provides post-combustion carbon capture solutions for natural gas turbines, which can help decarbonize power plants today.  

In addition, retrofitting the turbines to use a hydrogen fuel blend is occurring in phases to ensure performance, reliability, and safety:

• - In 2022, Georgia Power, in partnership with Electric Power Research Institute (EPRI) and Mitsubishi Power, validated a 20% hydrogen fuel blend on an advanced class gas turbine.
• - In 2023, Mitsubishi Power completed a 30% hydrogen co-firing demonstration using a state-of-the-art large frame gas turbine at its Takasago Hydrogen Park facility in Japan.
• - Validation of 100% hydrogen firing in an H-25 gas turbine is planned for 2024.

This evolution shows how each step can build on the last, moving the technology closer to toward widespread adoption so that it will contribute to decarbonization.

Setting and resetting your course

The path along the energy transition reflects the dynamic nature of the world today. The unforeseen trends, the new technologies, the drivers of explosive growth – companies are being asked to adapt to it all while forging the course to a cleaner future. This requires planning, learning, and pivoting.

As the power industry has seen time and again, that course is easier to navigate with the right partners. They can help plan and share the risk inherent to new solutions. And they can see around corners and help you adjust course accordingly.

From the largest companies to the newest startups, everyone can be a force for change in the energy transition.

Xiufang Gao is Director of Energy Transition Market Strategy at Mitsubishi Power Americas, and Andrea Willwerth is Manager of Market Intelligence and Strategy on the Energy Transition team at Mitsubishi Power Americas.

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