In a new forecast, investment research firm Morningstar says that cannabis cultivation, data centers and electric vehicle charging could boost U.S. power demand substantially, making the firm’s forecast more robust than the forecast of the Energy Information Administration and the National Renewable Energy Laboratory.
The Morningstar analysts predict 1.25% annual growth in electricity demand between 2019 and 2030, compared with EIA’s 0.90% estimate for 2017-2050 and NREL’s 0.91% estimate for 2017-2050.
Morningstar analysts Travis Miller and Scott Bischoff say other analysts have disregarded two factors that lead them to underestimate demand. They underestimate demand from new sources that are small contributors today but could become significant demand sources in the next decade, namely, cannabis cultivation, data centers and electric vehicle charging, which the Morningstar analysts say will approach 6% of total U.S. demand by 2030.
Morningstar also says more bearish estimates also ignore the diminishing returns from energy efficiency as efficiency improvements reach their maximum achievable limits over the next 10 years.
Energy efficiency is still a substantial force in suppressing electric demand growth, but it is maturing, the Morningstar analysts say. Between 2010 and 2017, energy efficiency has been responsible for a 2% annual average drop in electricity intensity, but
Morningstar expects that rate of decline to drop by half as lightbulbs, appliances, and factories either reach their technical efficiency limits or reach a point where the economics do not support efficiency investments. They forecast the electricity intensity of the U.S. economy will fall to 0.19 kWh per dollar of GDP by 2030, down from 0.22 kWh/GDP in 2017 and a peak 0.32 kWh/GDP in 1978.
The Morningstar analysts say demand growth from electric vehicle charging stations represents the fastest growing source of electricity demand in the outer years of their forecasts. They expect demand from EV charging to climb 150% by 2030 and account for 1.7% of total U.S. electricity demand.
Morningstar expects demand from data centers to nearly double by 2030, climbing to 3.2% of electricity demand by 2030, up from 2% currently. To benefit from that trend, location is important, the analysts note. Data center growth is particularly robust in the Southwest and Mid-Atlantic.
Utilities that will benefit from the growth of data centers are those with reliable, efficient, secure, and smart distribution-level grids that can keep data centers operating around the clock with high levels of security and energy-management services, Morningstar said. The analysts also noted that access to renewable energy could be key to attracting data center demand growth because many data-intensive companies are eager to enhance their environmental impact profile.
An example of a public power utility attracting a data center can be found with the Omaha Public Power District. Facebook in 2017 said that it had selected a new Nebraska wind project that will supply power to the social media company’s new data center in Papillion, Neb. OPPD played a key role in bringing the data center to Nebraska through an innovative rate plan.
Morningstar estimates that electricity used to grow cannabis could grow from 15 terawatt-hours to 65 terawatt-hours over the next decade and become as much as 1.5% of total U.S. electricity demand by 2030.
A growing list of states have legalized cannabis in one form or another, and cannabis cultivation is electricity intensive because of the bright lights and climate control systems needed to optimize indoor growing conditions.
Utilities that could best benefit from the growth of cannabis cultivation are those that invest in grid reliability to support growers' around-the-clock demand while keeping electricity prices low and integrating renewable energy to enhance growers’ green profile, Morningstar said.
The power industry has been grappling with several challenges associated with cannabis operations including the collection of data on growth operations. Growing marijuana is energy intensive, which means it can lift a flat demand curve profile, but it can also strain resources.
Overall, Morningstar says the utilities that are best positioned to benefit from the three emerging demand sources are those that invest in grid expansion, smart networks, safety, reliability, and renewable energy during the next decade.
In a worst-case scenario, Morningstar says utilities that miss the boat on these opportunities could face a “death spiral” that leaves them with disappointing future returns. Those utilities could face high fixed costs and capital investments that require higher customer rates if demand growth slows. Higher rates would, in turn, lead to higher electricity prices, which would create greater incentives for customers to curb energy usage with energy efficiency or distributed generation, leading to additional rate hikes.