Finance Association, May 14 (Editor Xiaoxiang) If the end of AI is electricity, then the US government is probably already planning for the future...

According to media reports, a little-known but powerful US regulator, the Federal Energy Regulatory Commission (FERC), which oversees the wholesale electricity market, has now finalized comprehensive new rules aimed at expanding the construction of large-scale transmission lines in the US and bringing more renewable energy to homes and businesses. These approved new regulations are also expected to make it easier to obtain approval for future large-scale regional transmission projects.

According to reports, FERC approved two rules on Monday. One will require companies that produce and transmit electricity to weigh factors such as supply and demand for at least 20 years; the other involves licensing issues for key projects in regions that lack sufficient transmission capacity.

Rob Gramlich, president of the power consulting firm Grid Strategies, said that the regulations requiring long-term planning are “the largest single action taken by the federal government to advance transmission of electricity.”

Long-term planning needs to consider the effects of extreme weather associated with climate change, as well as project costs. By expanding transmission capacity, regions affected by weather disasters will be more resilient because they will be able to obtain electricity from other parts of the country.

Currently, most US utilities have plans for future needs and other contingencies, but few utilities will plan ahead of time for decades to come. As a result, utility companies sometimes lag behind in changing power generation technology, demand, and disruptive weather events caused by climate change.

Addressing long-term dilemmas

FERC Chairman Willie Phillips said on Monday, “Our country is facing an unprecedented surge in demand for affordable electricity, while also dealing with extreme weather threats to the reliability of our power grids and striving to stay ahead of the tremendous technological changes taking place in our society.”

Senate Majority Party (Democratic Party) leader Chuck Schumer (Chuck Schumer) said in a media conference call on Monday that the Federal Energy Management Council's planning rules will help make up for the regret that Congress has failed to pass legislation to expand electricity transmission in the past few years. He anticipates that Congress will still be unable to pass electricity transmission legislation this year.

Across the US, plans for numerous new power projects (mostly wind and solar projects) have been delayed due to delays in connecting to the grid to generate electricity. According to a recent report from Lawrence Berkeley National Laboratory, the backlog of new power projects seeking grid-connected power generation in 2023 (mainly solar, wind, and battery energy storage projects) soared 30% from the previous year. According to the report, the new project “fell into a long and uncertain research process.”

The new rules aim to promote projects that benefit taxpayers, thereby increasing transmission capacity and providing cheaper electricity. The rule also addresses the question of how to distribute costs among taxpayers in projects involving multiple states.

Larry Gasteiger, executive director of trade association Wires, said, “Cost allocation is a huge issue and a contentious one.”

Critics of the rule say the new regulations could clash with local regulators's oversight of utility projects and could lead to an increase in consumer bills. Several local Republican officials have threatened to sue the government over the rule, claiming that the Federal Energy Management Council has overstepped its powers in efforts to introduce more clean energy into the grid.

Utility companies don't always support long-distance transmission lines because the electricity they bring can cost less than they generate. The cost of wind and solar energy has dropped dramatically in recent years, making them more competitive compared to natural gas.

Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School, said, “One of the main reasons power companies don't want to build large-scale transmission (projects) is that it will hurt their power plant business.”

The planning rules also provide new guidance on the role of states in large-scale transmission projects and seek input from states in the early stages of project planning.

An inevitable shift due to a surge in electricity demand?

When these new rules were introduced, America's new manufacturing industry, electric vehicles, and giant data centers that meet the needs of artificial intelligence are driving a sharp increase in electricity demand. As a result, power companies are scrambling to adapt, and some have abandoned plans to decommission fossil-fuel power plants or add new natural gas power generation.

In Georgia, Georgia Power, the state's main utility, has raised its electricity demand forecast 16 times and plans to burn more natural gas to meet demand.

Virginia's largest utility company, Dominion Energy, supplies power to most of the state's data centers, and is expected to quadruple data center electricity usage over the next 15 years, accounting for 40% of the state's utility needs.

Obviously, the current US government's power grid planning is no longer just a short-term perspective, but is aimed at a longer-term dimension to ensure that the grid can adapt to the energy needs and technological changes of the next few decades.

According to an earlier Goldman Sachs study, the surge in power demand due to AI data center operations will bring downstream investment opportunities to the utilities, renewable energy generation, and industrial sectors. Goldman Sachs predicts that data center electricity demand will grow at a compound annual growth rate of 15% from 2023 to 2030. This growth trajectory is expected to increase the share of data centers in the total electricity demand in the US from about 3% to 8% in 2030.

Goldman Sachs said this trend is expected to drive around $50 billion in US electricity investment in 2030.

According to reports, the US government's current new planning requirements will also encourage power companies to adopt more so-called grid enhancement technologies, such as sensors and power flow control devices. These technologies can improve power transmission in existing lines, and are generally cheaper than building new transmission lines.

The Biden administration is also using other levers to stimulate transmission construction. Last month, the US Department of Energy became the leading federal agency to coordinate environmental approvals for major transmission projects across the US to rapidly advance grid infrastructure construction. The new procedure aims to reduce the red tape grid planners face when seeking separate approval from federal agencies such as the Environmental Protection Agency, the Department of the Interior, and the Department of Agriculture.