Energy abundance has always been inextricably linked with human prosperity, and that remains true today. A 2022 graph that compared the GDP per capita of all the countries on Earth against their per capita energy consumption shows a very strong correlation: there are no countries with high energy consumption that are poor, and there are no countries with low energy consumption that are rich.
The good news is that energy production costs are quickly decreasing, particularly because of the extremely rapid decline in the cost of renewable energy sources like solar and wind. But energy consumption is not growing apace, held back by the fact that the price of electricity in the US, adjusted for inflation, has barely changed over the last twenty years.
The reason? Although generating electricity has gotten a lot cheaper, transmitting that energy from the place where it was generated (a power plant, wind farm, offshore solar farm, etc.) to where it’s needed (your house or office) has gotten more expensive. The cost of delivering electricity increased significantly in the 2010s, despite cheaper generation costs from renewables and natural gas, because of the grid.
The US electrical grid — which is actually made up of four independent grids — is a marvel of engineering. However, as Base Power CEO Zach Dell noted in a just-released podcast episode of Contrary Research Radio, “it’s very old, and it’s not sized for modern demand.” Compounding this problem is the fact that energy supply is increasingly coming from renewable sources with outputs that vary throughout the day, creating additional load on the grid.
So, although the cost of generating energy is collapsing, supply is becoming increasingly volatile. Meanwhile, energy demand is set to surge. As Zach Dell pointed out on our podcast, if the grid is struggling today, it’s definitely “not sized for where modern power demand is going.”
EV adoption is going to be one driver of the rapid increase in energy demand. EVs accounted for 7.5% of all vehicles sold in the US in 2023, but that number is expected to rise to 29% by 2030. Another driver will be the increased energy demand of AI data centers. The power they consume will double by 2026, by which point data centers globally will consume the same amount of energy as the country of Japan.
The electric grid is not prepared for this increased power demand and an increasingly volatile supply of energy from renewables. It was built to balance a stable supply of electricity to meet a predictable demand. As a result, customers are already suffering higher prices and more outages — problems that will only worsen if nothing changes.
The average length of electricity outage per customer increased from about 210 to over 400 minutes per year between 2013 and 2021. Texas faces a particularly acute distribution problem, as its grid relies heavily on renewables. After a historic winter storm in 2021, more than 4.5 million homes, approximately a quarter of all residences, were without power for several days. Texas utility operators allowed the price of electricity to go up to $9 per kilowatt-hour, resulting in electricity bills of thousands of dollars for many Texans.
This week, in combination with our podcast episode, we published a report on a company that is trying to solve this problem: Base Power, also known as Base, aims to relieve pressure on the grid by installing residential batteries at scale. Placing batteries next to homes solves both the supply volatility and demand volatility problems of the grid by allowing homes to store energy when demand and prices are low, and discharge when demand and prices are high, reducing stress on the transmission lines. Read more about Base Power in our full company breakdown here.
