Shouldering the New Load: What Rising Power Demand Means for Large US Commercial Consumers

As load growth across the US hits record highs, large commercial consumers must reconsider their procurement strategies

“The Era of Flat Power Demand is Over” according to a 2023 report from Grid Strategies, which finds that the US electric load is growing significantly faster than anticipated—largely as a result of new data centers, manufacturing, and the electrification of transportation and buildings.

The new load isn’t just bigger; it also possesses new patterns. Data centers, spurred in part by mounting demand for artificial intelligence (AI) tools, run 24/7 and are projected to account for 8 percent of the country’s total electricity consumption by 2030. Electric vehicles can cause disruptions of their own, driving up peak loads after the evening commute. Stipulations that renewables be part of the energy mix, meanwhile, add to the complexity and risk of potential disputes.

All this raises the bar for large commercial power consumers, which must take a careful look at their procurement strategies to mitigate steep cost spikes or even shortages. Here’s what they need to know.

US Energy Demand Hits Record Highs

US power consumption is on track to rise to new records in 2024 and 2025, according to the Energy Information Administration.

 

Implications for Large Consumers: Higher Costs, Higher Risks

One example of the planning challenges associated with the new load growth arose when Duke Energy released its Carolinas Resource Plan in August 2023, only to later realize that it hadn’t adequately prepared for an “unprecedented” surge in power demand. In January 2024, it filed a revision announcing, among other things, the development of new gas-fired generation combined with increases in nuclear, renewables, and battery generation.

Part of the problem is the uncertainty surrounding the new load. So much of the expected power consumption growth stems from large individual installations, which can make advance planning difficult: if a 500-megawatt data center that adds over 5 percent to a grid’s total load is prepared for but doesn’t end up signing on, that could lead to significant overbuild of resources. This is a factor at Duke, which revised its August forecast for the Carolinas from eight large-site projects by 2033 to thirty-five and projects new rate increases.

Large commercial and industrial consumers are facing rate increases elsewhere across the country as supply and demand balances tighten. PJM Interconnection’s latest capacity auction hit record highs due to expected load growth and market reforms. The Midcontinent Independent System Operator saw capacity prices nearly triple earlier this year.

Meanwhile, in Maryland, legislators are clashing with Constellation Energy over the company’s push to plug an energy-intensive data center directly into its Calvert Cliffs nuclear power plant. Constellation says that co-locating data centers will help grid efficiency and lower overall grid costs. But concerns about consumer protections, including the impact on ratepayers if that power isn’t routed through the regional grid, prompted a new amendment to a state bill that would prohibit Constellation from building a data center there.

“The impact of putting a data center behind the wall at Calvert Cliffs is essentially like taking Calvert Cliffs off the grid,” State Delegate Lorig Charkoudian said in April, adding that it “is a sneaky way for data centers to get around paying for the energy they get from the grid.” A final recommendation from the state’s Public Service Commission regarding the amendment is expected to be made to the General Assembly in December.

In the worst-case scenario, large energy consumers could even face shortages. The Netherlands is a cautionary tale: On the heels of exploding electricity demand and a regulatory emphasis on rate reductions, Dutch grid operators indefinitely paused the interconnection of nonresidential loads.

Though the US doesn’t face quite the same challenges as the Netherlands—US utilities, for instance, are financially motivated to invest in grid infrastructure—there are important analogs. Though reform is on its way, permitting for regional transmission development remains a critical bottleneck, inhibiting the ability for utilities to deliver power at lower costs and meet rising demand.

Strategic, Forward-Looking Energy Procurement Is Crucial

As tighter energy systems ratchet up the pressure on large consumers, it will become increasingly important for leaders at these organizations to rethink their procurement strategies.

To get started, consider the following:

• Behind-the-meter resources can help, but customers looking for large savings need to focus on batteries and firm resources that support system reliability. Large consumers need to ensure that they have the proper mix of contracted renewables and potentially gas to maximize the value of the system given location-specific rate structures. Ask yourself: What mix of renewables, batteries, and gas gives my organization the best returns on cost?

• There will be increased value in offering flexibility to support the system. Even more so than traditional demand response, the ability to turn down load rather than having the system planned around an organization’s particular needs will be highly valuable. Critically, value-maximizing consumers should expect that system operators will call on flexible capabilities more often than before.

• More market hedging and forward procurement of resources is necessary. As power for large consumers becomes an increasingly substantial variable cost, more entities should be active participants in the wholesale market, enlisting a broker to buy power forward to hedge risks and insulate against current challenges. Large consumers could also buy (or develop) energy resources themselves, as Google did with its new geothermal plant.

It would be understandable if some large power consumers haven’t given as much thought to these strategies in the past decade as they will need to going forward. After all, power has remained relatively cheap given the excess capability in most energy systems.

However, with rates poised to increase at a rapid clip, large consumers now face significant risks, financially and otherwise. In this new era, they’ll have to up their game when it comes to procurement strategies to stay ahead.