As we seek to decarbonize our global economy most efficiently by electrifying everything we can, the cost of renewable energy continues its rapid decline, and distributed energy resources (DERs) become more prevalent, the future power grid is poised to increasingly resemble the complex structure of the internet.
The traditional model of centralized baseload energy production and non-flexible consumption is being transformed, giving way to a more dynamic network of variable decentralized supply and demand centers. This shift heralds a new paradigm in energy production and consumption, where electricity is not just delivered but also intelligently and efficiently managed through a web of bidirectional, responsive, and communicative infrastructure.
This transformation is occurring against a backdrop of exploding strain on the grid due to a significant increase in demand-side growth. Accelerated by colossal legislative measures such as the Inflation Reduction Act, the demand for electricity has surged, fueled by the expansion of data centers, the proliferation of electric vehicles (EVs), the widespread adoption of heat pumps, and the onshoring of manufacturing for critical components of the energy transition, such as batteries and solar modules. According to Grid Strategies, industrial and manufacturing facility commitments in the U.S. have reached approximately $481 billion since 2021, with more than 200 such facilities announced in the past year1.
Furthermore, new investments in U.S. data centers are projected to exceed $150 billion through 2028, driven by rising demand for cloud computing, telecommunications, digitization, and artificial intelligence (AI)2. To illustrate the magnitude of energy consumption driven by the adoption of AI, studies indicate that a single GPT query expends approximately ten times more energy than a Google search query3. Furthermore, estimates from U.S. utilities and grid operators regarding electricity demand growth over the next five years have almost doubled over the past year, skyrocketing from a previous 2.6 percent to 4.7 percent4. This estimate far surpasses the incremental 0.5 percent annual growth of the past decade.
Simultaneously, the energy supply side is experiencing its own transition with substantial growth in renewable energy resources and continuous upward revisions of solar deployment forecasts. Yet, integrating these variable renewable energy assets, such as wind and solar, which depend on fluctuating natural conditions, poses challenges to a strained grid. California's electricity market has highlighted this issue with their net electricity load 'duck curve' morphing into a 'duck canyon,' characterized by an abundance of cheap solar energy flooding the grid during peak sunlight hours.
Compounding these challenges is the insufficient transmission capacity for electricity transfer between regions, which becomes a critical concern for grid reliability when electricity demand growth outstrips the introduction of new generation assets in specific areas.
In this rapidly evolving landscape, the importance of flexible assets cannot be overstated. They are imperative for maintaining the delicate balance of supply and demand, ensuring the reliability of the grid, and supporting the efficiency and cost-effectiveness of our future energy system. As the grid transforms, these flexible assets will form the backbone of a resilient, sustainable, and responsive power infrastructure, capable of meeting the dynamic needs of the 21st century. As a result, climate tech ventures building intelligent, interoperable solutions capable of monetizing flexibility – either by providing a load-following resource on the supply side or by managing and shifting energy consumption patterns on the demand side – stand to be increasingly in demand. A few interesting solutions to watch include:
Smart air-to-water heat pumps that transform water heaters into thermal batteries can shift heating and hot water loads to reduce household peak electricity demand charges.
Advanced geothermal systems (AGS) with load-following capabilities act as thermal batteries to complement the variability of wind and solar energy resources.
DC fast chargers with integrated battery energy storage reduce peak demand charges and alleviate the need for extensive grid infrastructure upgrades.
Virtual Power Plants that leverage consumer resources like rooftop solar, home energy storage, and smart thermostats to balance the grid, offering compensation based on the amount of energy reduced or contributed back to the grid.
Bidirectional vehicle-to-grid charging systems transform electric vehicles into mobile energy storage units that can supply electricity to the grid during peak demand periods.
Article by the courtesy of Ariel Sharir, The Atmospheric Fund.
References:
1 https://gridstrategiesllc.com/wp-content/uploads/2023/12/National-Load-Growth-Report-2023.pdf
2 ibid
3 https://www.cbc.ca/radio/quirks/ai-energy-consumption-1.6995014
4 https://gridstrategiesllc.com/wp-content/uploads/2023/12/National-Load-Growth-Report-2023.pdf
