We Can Get the Electricity We Need Without Frying the Planet (or Our Pocketbooks)

Electric utilities from Georgia to Wisconsin to Virginia are predicting a dizzying surge in power demand from new industrial facilities, electric vehicles and, most of all, the data centers that store our digital photos and will enable large-language models for artificial intelligence. For months now, they have been signaling that they won’t be able to keep up.

To keep the lights on, many utility companies are proposing to build dozens of new power plants that burn natural gas. North Carolina-based Duke Energy alone wants to add 8.9 gigawatts of new gas-fired capacity — more than the entire country added in 2023. Using their own projections of soaring energy demands as justification, these companies are also pushing back on the climate targets set by their states and the Biden administration.

If state regulators sign off on these plans, they will be gambling with our country’s future. We need to electrify everything from cars to appliances to slow climate change, but we won’t be able to reach our climate goals if we power all of those machines with dirty energy.

There is a better way. But to get there, legislators will need to overhaul the incentives driving utilities to double down on natural gas, so that they can turn a profit without cooking the planet.

Companies like Duke, Dominion Energy and Georgia Power argue that they need more gas-fired plants to reliably provide power during times of peak demand — for instance, on a hot summer weekday afternoon when home cooling systems and data servers are all humming at maximum output, and the grid strains to keep up. But those peaks tend to materialize only for a few dozen hours per year, and there are ways to deal with them that don’t require a massive amount of new methane-burning infrastructure.

The real reason the utilities want to build these plants is quite simple: The more stuff they build, the more money they make. Regulators let utilities charge their customers enough money to cover what they spend on assets like combustion turbines and wires, plus a generous rate of return (up to 10 percent) for their investors. This longstanding arrangement incentivizes power providers to build expensive things whether society needs them or not, in lieu of lower-cost, cleaner options, and to invoke their duty to keep the lights on as a post hoc rationalization.

This dynamic can push some companies to extreme lengths in pursuit of gas-generated profits. Nearly a decade ago, Dominion and Duke partnered to build a 600-mile-long pipeline across West Virginia, Virginia and North Carolina, largely to supply their own new power plants. Back then, the companies cited their own forecasts of rising energy demand and claimed more gas supply was needed to back up intermittent wind- and solar-generated power coming onto the grid. But it soon became clear that there wasn’t any need for those plants, and most were canceled. The pipeline’s core premise had proved to be a mirage. And in 2020, faced with relentless grass-roots opposition, Dominion and Duke finally abandoned it.

It makes sense that Dominion and Duke executives would pursue these potentially lucrative investments; their job is to maximize returns for their shareholders. But utilities aren’t like other shareholder-owned companies. They are granted the right to be monopolies in exchange for providing essential services to society. And regulators’ job is to hold them accountable to the public interest. This century-old model is in dire need of an upgrade, so that utilities can be compensated for achieving goals — such as using clean, affordable energy and building a resilient grid — that are in everyone’s interest.

Although breathless forecasts of artificial intelligence gobbling up all of our power supply may or may not prove correct, there’s no question that after decades of remaining mostly flat, electricity demand is increasing. Fortunately, utilities have plenty of ways to meet this new need.

They include “virtual power plants” — when technologies such as home batteries, rooftop solar systems, smart water heaters and thermostats are linked together and managed via software to provide the same services as a conventional power plant. Utilities in Vermont, Colorado and Massachusetts are already using them, to quickly respond to rising demand at a much lower cost than operating natural gas combustion turbines. According to one estimate, virtual power plants could lower U.S. utilities’ costs by as much as $35 billion over the next decade.

Utilities could also accelerate efforts to replace outdated transmission lines with newer ones that can carry double theelectric current and to bring more battery storage online. They can compensate customers for using less energy during times when demand is high and invest far more in energy efficiency, helping customers to adopt devices that use less electricity.

All of these solutions would save customers money and reduce carbon emissions. They could, according to a Department of Energy analysis, meet the entire projected growth in U.S. peak electricity demand over the next decade.

Sure, they wouldn’t provide utilities nearly as much money as building new gas-fired power plants. But that’s why public utility commissions must step in to require utilities to make investments that benefit the climate and their customers, without scaring off their shareholders. What’s needed is not more regulation, just smarter regulation.

There are promising signs that this shift is already underway. In Connecticut, where customers pay some of the highest electricity rates in the nation, the chairwoman of the Public Utilities Regulatory Authority has created a program to test-drive tweaks to utilities’ incentive structure, as part of a larger initiative to build an “equitable, modern electric grid.”

More than a dozen other state legislatures have directed regulators to impose or study some kind of performance-based regulationto reward utilities based on what they do, instead of on how much they spend. This move has predictably elicited pushback from some companies, which believe that their traditional business models are under threat. But others have embraced the new opportunities: Hawaii’s approach has earned the support of the state’s biggest electric utility.

We need utilities to succeed now more than ever before. But the definition of success needs to evolve. We need them not only to shore up a grid being battered by extreme weather and wildfires fueled by climate change, but also to fully embrace the work of phasing out fossil fuels.

The United States has very little chance of reining in its emissions without investor-owned utilities putting their expertise and deep resources to work. We can’t build a carbon-free energy system without them — or without regulators and lawmakers willing to compel them to accelerate, rather than postpone, the clean energy transition.