We must move fast to avert a national electricity crisis
Years of misguided climate policy have pushed America to the brink of an electricity crisis.
Fossil fuel plants are retiring faster than renewable sources can replace them, at the same time as electricity demand is soaring from AI data centers and the push to electrify everything from vehicles to appliances. Congress and the new administration will have to move fast to avert what could be years of soaring prices and dangerous blackouts.
The scale of the looming capacity shortfall is staggering. Coal plants representing more than 15 percent of America’s electrical generation are expected to close by 2032, just as demand is expected to climb by at least 15 percent. That’s a potential shortfall of 30 percent of the 1,200 Gigawatts of generation capacity that could be needed by 2030, the equivalent of 400 average-sized nuclear plants.
Nonsense, say environmentalists. Despite the retirement of 8.5 GW of coal capacity last year, the nation’s grid grew by 8.4 GW because of the addition of 13.3 GW of solar and 4.3 GW of battery capacity. Shouldn't that solve the problem?
Unfortunately, no. The new renewable capacity is a mirage. Solar plants produce just 24 percent of their nominal capacity on average, much less during the winter, and often nothing at all, depending on the weather. Utility-scale batteries can maintain their maximum output for no more than a few hours. In contrast, most natural gas, coal and nuclear plants can operate above 90 percent capacity and can be ramped up and down as needed.
Despite soaring demand, the grid is actually contracting in terms of projected energy availability. Grid operators are now warning that large swathes of the country will fall below minimum reserve margins starting in summer 2025.
To meet the new demand, America will need hundreds of new gas and nuclear plants. Yet investment in such plants has virtually vanished. Indeed, data center developers are increasingly looking to build their own power plants, avoiding the grid altogether.
The main reason is the Inflation Reduction Act’s renewables subsidies. Most utilities have to purchase electricity from whoever is offering it cheapest. With the tsunami of subsidized solar power being dumped on the grid in the middle of the day, large coal, natural gas and nuclear plants can’t recoup their costs. That has made investing in such plants highly unattractive, which in turn is wrecking the economics of America’s electricity supply.
That is a main reason why electricity is getting more expensive as more renewables are dumped onto the grid, as Bjorn Lomborg noted recently in the Wall Street Journal.
Congress should repeal the IRA as soon as possible, and at the very least ensure that these subsidies expire in a few years unless renewed. This could be done through “budget reconciliation,” which requires only a simple majority in Congress, but it will require members and senators to resist the allure of free money for their favorite constituents.
In the meantime, the new administration should require gird operators to maintain reserve margins based on projected energy availability under stress test scenarios, rather than nominal capacity, which is not a meaningful metric for variable sources like solar, wind and battery. Federal regulators should also require grid operators to prioritize reliability, for example by requiring renewable plants to provide for dispatchable backup for the power they offer.
Another major constraint on investment in the power plants we actually need is state renewable energy mandates. Such mandates have no measurable influence on climate, but they force people in resource-rich New York and California to pay 76 percent and 113 percent more for residential electricity, respectively, than those in resource-poor Florida.
To compensate for their social cost, such mandates should trigger a federal surcharge (or a loss of IRA tax credits) on renewable projects where a state’s electricity rates exceed the national average by more than, say, 30 percent. That is another measure that could pass through reconciliation.
Inefficient permitting is another problem. Due to the hydra-headed nature of the federal bureaucracy, America has the slowest, costliest and riskiest process for permitting major infrastructure projects in the world. It deprives American communities of urgently needed infrastructure and is a major drag on America’s industrial and technological might.
The new administration should look to international best practices, such as Denmark’s one-stop permitting agency and Australia’s single permit application for projects of national importance. Expanding general permits for projects that can self-certify without lengthy government preapproval could further reduce delays.
Litigation reform is also needed to prevent small local groups from stalling nationally important projects with endless lawsuits. Requiring plaintiffs to post bonds to cover potential losses from unwarranted delays is yet another idea that could pass in budget reconciliation.
President Trump has pledged to tackle the looming electricity scarcity crisis. Now Congress must be ready to do its part.
Mario Loyola is a professor at Florida International University and a senior fellow at the Heritage Foundation.