While this analysis may have some US-centric bias, from the forecast numbers from the US EIA, the sourcing of articles, the examination of policy changes expected from a new Trump administration (which will have significant geopolitical ripples), and the fact that the creators of this work are Americans (try not to hold it against us), the electricity gap challenge is a global one. Every nation has the same demand for electricity demand vs. generation challenge. The scale and maturity of their power grids may vary, but the challenge is the same. Each country and region (EU, China, India, Africa, etc.) applies different policies and approaches to address their level of electricity gaps, but make no mistake; this is a global scale problem.
The Wall Street Journey has dubbed it “The Coming Electricity Crisis.” Some call it “The Electricity Gap,” but click-bait headlines aside, the simple facts are that electricity demand is growing at record rates, according to public statements and reports from the US Department of Energy, the US Energy Information Administration, and the International Energy Agency. DOE Deputy Director David Turk stated, “Projections for U.S. electricity demand growth over the next five years have doubled from a year ago. The major culprits are new artificial-intelligence data centers, federally subsidized manufacturing plants (CHIPS ACT), and the government-driven electric-vehicle transition.” At the same time, the total growth number covers a range of predictions (60-100% by 2040). The universal consensus is that a significant electricity demand surge is occurring.
The US power grid is aging, and many of the older power plants, on average 29 years old, are scheduled to be shut down in the next 5-10 years. The shutdowns are due to operational cost issues, moving demand locations, and regulatory issues for clean air and carbon reductions. The latest Trump plans to support existing fossil fuel power plants will have their life extended, potentially influencing the electricity gap. We have already seen statements from Duke Energy on this subject indicating they will extend the life of current coal-fired powered plants if regulations are changed.
Global electricity demand is projected to surge in the coming decades, driven by a confluence of factors reshaping our energy landscape. The US Energy Information Administration (EIA) projects that global energy consumption and associated CO2 emissions will increase through 2050, assuming the global energy system remains on its current trajectory.
10B People By 2050 - The global population will reach 10 billion by 2050. As the global population continues to expand, particularly in emerging economies, more people will require daily access to electricity.
Economic Development - The US EIA states that rising living standards and increased manufacturing in developing regions push energy consumption beyond energy efficiency advances. Addressing the electricity gap is crucial to sustaining this economic growth and improving living standards.
Electrification of Transportation - The rapid adoption of electric vehicles creates a new electricity demand source. The Biden administration has set a goal for electric vehicles to make up 50% of all new car sales by 2030. With the incoming Trump administration, we can expect changes in tax credits, emission requirements, and other policy changes in the US. The EU and other parts of the world continue to drive more green energy programs.
Cloud, Crypto, and AI - The rise of cloud computing, cryptocurrency, and artificial intelligence is driving substantial growth in data center electricity consumption. Estimates suggest that data centers will account for up to 10% of global electricity demand by 2050. Given President-elect Trump’s advocacy of crypto, Elon Musk’s crypto profile, and the policy statements about making the US the “Crypto Capital of the World,” this will drive data center power demands.
Industrial Electrification - Many industries are transitioning to electric processes as part of decarbonization efforts, further increasing electricity demand.
Climate Change Adaptation - Rising global temperatures are increasing the use of air conditioning and cooling systems, which is contributing to electricity demand growth.
Global Electricity Demand - The EIA projects that global electricity demand could increase by about one-third to three-quarters by 2050, depending on various scenarios. This substantial growth presents both challenges and opportunities for the worldwide energy sector.
The gold standard for forecasting electricity demand and generation today is the United States Energy Information Agency (US-EIA) forecast, which goes through 2050. The most recent US-IEA forecast shows renewals growing up to 76% of worldwide power generation (with solar at 20.1% and wind at 13.7%), while fossil fuels will be down to 42.4%. However, some new demand drivers exist that Ignition Research thinks will increase the US-EIA’s forecast and the electricity gap. We also looked at the Ignition Research Worldwide Energy Demand Report, which adds specific increments to the EIA report related to AI, Crypto, and EVs.
Ignition Research forecasts that the electricity demand will increase worldwide by up to 79.4% between 2022 and 2050, with a worldwide market of over 50,000 billion kilowatt-hours (BkWh) by 2050. This contrasts with US-EIA’s forecast of just under 42,300 BkWh by 2050, an increase of 49.8% between 2022 and 2050.
Renewables Supply and Supply Chain Risks: Growth (over 2.5x between 2022 and 2050) seems aspirational, especially given that China produces over 90% of all solar panels, over 75% of wind turbines, and over 84% of Lithium batteries today.
AI Data Center, Crypto & EV Demand Underestimated: Many drivers of electrical demand are underestimated, precisely the electrical needs for EV charging (increases demand by over 7% by 2050) and for hyper-scale data centers (increases demand by nearly 12% by 2050).
The Brookings Institute indicates that an 'all-of-the-above' energy strategy could be a promising solution to the electricity gap. This approach, leveraging America's diverse energy resources, could meet growing demand while reducing reliance on foreign energy sources. It could also increase job creation and economic stimulation in the energy sector. However, closing the electricity gap presents significant challenges, including capital, staffing/skillsets, land usage, regulations, and timelines to meet demands already outpacing development.
Powerlines - A substantial transmission and distribution grid expansion is necessary to accommodate increased generation and changing demand patterns. A US Department of Energy report revealed that the US transmission system is already at or near capacity across several states.
Non-Dispatchable Renewables - As the share of non-dispatchable renewable energy sources like wind and solar increases, grid operators face challenges balancing supply and demand, necessitating investments in energy storage and flexible generation technologies.
Capital Investments - The massive scale of required investments presents a significant challenge to the G20 and developing countries. We are trying to invest in a new century's growth in less than 10 years.
Regulatory and Policy - The new Trump administration is expected to develop supportive policies and regulations to encourage investment in new generation capacity and grid infrastructure.
Technological Innovation - AI, IoT, and analytics are changing how the grid works, how energy is traded, and the need for more granular control over power distribution. Innovative grid initiatives are driving the adoption of more sophisticated monitoring and control systems throughout the distribution network, increasing the need for capacitors with communication and sensing capabilities.
Workforce Development - Rewiring America's 2024 Workforce Report projects that robust electrification in the United States could create up to 3 million new jobs. This number is likely only ⅓ of the global need. This includes over 1.1 million direct jobs and an overall employment effect of over 3 million new jobs.
Cybersecurity - As the grid becomes more digitalized and interconnected, protecting critical infrastructure from cyber threats becomes increasingly essential.
Tariffs and Supply Chain - Trump's proposed tariffs, especially on Chinese imports, could inflate prices for crucial grid components and impact energy infrastructure. This could have ripple effects throughout the power sector, potentially increasing costs for grid modernization and renewable energy projects. The full extent of these impacts would depend on the specific tariffs implemented, and how they interact with existing supply chains and manufacturing capabilities in the energy sector is yet to be determined.
The International Energy Agency (IEA) projects that in its "Energy for All" scenario, mini-grids alone would require a total investment of about $300 billion between now and 2030. According to BloombergNEF, the total global investment could reach $21T in spending by 2050. The cost of closing the electricity gap through new power plants and transmission infrastructure is substantial. While precise global figures are challenging to determine due to varying regional needs and technologies, several estimates provide insight into the scale of investment required:
Transmission Infrastructure - The U.S. Department of Energy report notes that new energy deployment would require a 60% expansion of the U.S. transmission system. While specific costs weren't provided, this suggests a significant investment requirement.
U.S. Government Investments - The Biden-Harris Administration has announced several significant investments to bolster the nation's electric grid infrastructure:
A $1.3 billion commitment to three transmission lines crossing six states.
Nearly $3.5 billion to strengthen grid reliability and resilience across 44 states, sparking a combined public-private investment of $8 billion.
An additional $748 million in formula funding to states, territories, and tribes for grid modernization.
Up to $21T in Global Investment Needed - The total global investment required to close the electricity gap will likely be in the trillions of dollars. This includes generation and transmission, distribution networks, energy storage systems, and grid modernization technologies.
The potential impact of the new Trump administration on efforts to close the electricity gap will likely be significant, based on policies pursued during his previous term and stated intentions for a second term. Here are some key points to consider:
Fossil Fuel Focus - Trump's previous administration heavily favored the coal, oil, and natural gas industries. This included opening federal lands and offshore areas to fossil fuel exploration and extraction. A return to these policies could slow the transition to renewable energy sources.
Regulatory Rollbacks - Trump's previous term saw the rollback of various environmental regulations. Similar actions in a second term could make developing new fossil fuel-based power plants more straightforward, but potentially at the cost of increased emissions.
Infrastructure Approvals - The Trump administration fast-tracked approval processes for crucial infrastructure projects, including oil and gas pipelines. This approach could speed up the development of specific energy projects.
Clean Energy Incentives - Despite potential policy changes, the clean energy incentives in the Inflation Reduction Act have gained bipartisan support due to their economic benefits across both red and blue states. In August 2024, eighteen House Republicans publicly urged not to repeal these tax credits.
International Agreements - Trump previously withdrew the US from the Paris Agreement. A similar move in the second term could impact global efforts to address climate change and energy transitions.
Nuclear Power - Nuclear power is expected to triple by 2050 based on new policy plans that support AI data centers and the “all of the above” energy model. AI and data centers' voracious appetite for power has generally led to a “nuclear renaissance.” Trump's approach to nuclear power will likely be part of a broader "all-of-the-above" energy strategy that aims to support various energy technologies without favoring specific ones.
Trade Policies - Trump's previous tariffs on Chinese imports affected the clean energy supply chain. Similar policies could impact the cost and availability of components for renewable energy and grid modernization projects.
In this analysis of “The Electricity Gap,” one thing is clear: Meeting the growing global demand will take an “all-of-the-above” approach. The Brookings Institute also indicates that a second Trump administration's energy policy will likely prioritize national security, energy independence, and economic growth through an "all-of-the-above" energy strategy that aligns with the pragmatic approach to closing “The Electricity Gap.” The US and almost every other nation must extend the life of current resources to allow time to build enough new power generation to expand and concurrently upgrade existing power generation and transmission. These projects take time, planning, available workforces, regulatory approval, social license, and significant capital. We can and will, by necessity, close “The Electricity Gap,” but it will take time.