The EPA’s Emissions Rule Will Strangle AI In The Crib
Big Tech desperately needs more electricity to fuel its artificial intelligence push. These 10 charts show why AI needs gas-fired power plants.
ENIAC was a beast.
The world’s first general-purpose electronic computer contained 17,468 vacuum tubes, 10,000 capacitors, 1,500 relays, 70,000 resistors, and 6,000 manual switches. All those parts were connected by some 5 million soldered joints, most of which had to be joined by hand. In 1946, when it was completed, the Electronic Numerical Integrator and Computer weighed 27 tons, covered 240 square feet (22 square meters), and required 174 kilowatts of power.ENIAC used so much electricity that when it was switched on, it caused lights in the rest of Philadelphia to dim momentarily.
Six years later, John von Neumann, the mathematician and computer pioneer, unveiled MANIAC, the first computer to use RAM (random access memory). As I explained in my fifth book, Smaller Faster Lighter Denser Cheaper: How Innovation Keeps Proving The Catastrophists Wrong, that machine required 19.5 kilowatts of power. Author George Dyson said, “the entire digital universe can be traced directly” back to MANIAC, short for Mathematical Analyzer Numerical Integrator and Automatic Computer.
Many things have changed in the decades since ENIAC and MANIAC were first connected to the grid. But the power hungry nature of computing has not. The Computer Age has been defined by the quest for ever-more computing power and ever-increasing amounts of electricity to fuel our insatiable desire for more digital horsepower. As data centers have grown over the past two decades, concerns about power availability have surged. That history is relevant to me because I first wrote about data centers and electricity in 2000. In a piece for Interactive Week called “Power Struggle,” I wrote:
In the debate over power demand and the Internet, data centers are often exhibit No. 1. These facilities, also known as “server farms” or “telco hotels,” consume vast amounts of electricity. With power concentrations of 100 watts per square foot, a 10,000-square-foot data center can demand as much power as 1,000 homes. But unlike homeowners who turn their lights off when they leave for vacation, data centers require full power 24/7. In Seattle, a raft of new data centers is forcing the city to scramble to meet their needs. Over the next 24 months, the city’s utility expects a handful of data centers to raise its average daily demand by about 250 megawatts, an increase of nearly 25 percent over current loads. Other regions, including the San Francisco Bay and Chicago areas, are also facing power supply problems caused, in part, by data centers.
What’s old is new again. The rise of artificial intelligence has re-ignited concerns about electricity availability and strains on the power grid. Over the past two decades, worries that data centers would overwhelm local electricity providers have been muted because our computers keep getting more efficient. But this time, the concerns that there won’t be enough juice for AI and data centers are justified.
Yes, this time is different. And the key difference is Joe Biden’s EPA. On May 9, that agency published a rule in the Federal Register that, if it survives legal challenges, will force the closure of every coal-fired power plant in America and prevent the construction of new baseload gas-fired plants. If the rule survives those challenges, it will strangle AI in the crib.
Chart 1
Furthermore, the EPA aims to shutter massive amounts of coal-fired generation and prevent the construction of dispatchable power plants at the very moment forecasters expect massive electricity demand growth from AI and the electrify everything push. It’s also happening at the same time that regulators and policymakers are warning about the reliability of the electric grid. (More on those points in a moment.)
The same day the EPA published its rule, Vinson & Elkins, a Texas-based law firm with 700 lawyers that does extensive work in the energy sector, published a summary of the rule, explaining that it presents “heavy headwinds for new gas-fired plants intended to be operated above a 40 percent capacity factor.”
“Heavy headwinds” is incorrect. The EPA’s new rule is a de facto ban on new gas-fired power plants. As the firm explains, the new rule requires all existing coal plants and new gas-fired power plants to deploy carbon capture and sequestration equipment and “capture 90% of all CO2 emissions. The inevitable effect of this capacity factor cut-off will be to substantially reduce the chance that new base-load gas plants can be built.”
The hard reality is that CCS is not a viable option. Last month, Dan Brouillette, the former secretary of energy, who now heads the Edison Electric Institute, the trade group for investor-owned utilities, said, “CCS is not yet ready for full-scale, economy-wide deployment, nor is there sufficient time to permit, finance, and build the CCS infrastructure needed for compliance by 2032.” Given the impossibility of adding CCS to existing coal plants, those facilities will have to be shuttered. That would be disastrous. Why? As seen above in Chart 1, coal plants now produce about 16% of the electricity used in the U.S.
Chart 2
While coal-fired generation is declining, it is still a critical component of the American generation fleet. In fact, coal-fired power plants produced more electricity last year than wind and solar combined.
Regardless of the source of energy generation, Big Tech needs a lot more electricity. That will require more gas-fired power plants running at high capacity factors. Why? Wind and solar can’t provide the always-on power that data centers need. (Plus, those weather-dependent sources need massive amounts of land and new high-voltage transmission capacity.) Coal is out of the question. And new nuclear plants — regardless of the design — are still years away from being permitted and built.
That leaves natty.
In March, Toby Rice, chief executive of gas giant EQT, said, “There is a lot of excitement in the natural gas markets. We’ve talked a lot about LNG, but one market that’s emerging that we are equally as excited about is the AI boom that is taking place.” Last month, Tudor Pickering & Holt, a Houston investment banking firm, estimated that AI could require, in its base case, around 2.7 Bcfd of incremental natural gas. But the figure could also be as high as 8.5 Bcf/d by 2030. In mid-April, an analyst at Morningstar estimated the power burn for AI at 7 to 16 Bcf/d by 2030. Also last month, Rich Kinder, the executive chairman of pipeline giant Kinder Morgan, estimated AI would require 7 to 10 Bcf/d of new gas consumption.
Last week, I spoke to Jacob Williams, the general manager and CEO of the Florida Municipal Power Agency. The FMPA is a joint action agency that supplies electricity to 33 municipal electric utilities in Florida, a state that gets the vast majority of its electricity from gas-fired power plants. Williams told me the EPA is “trying to kill coal but they are not allowing utilities to build viable alternatives to coal. And right now, that means gas.” He went on, saying the agency “has cut off the ability of utilities to build reliable baseload gas plants. They don’t care what the price of power is going to be. When we point out that these regs will triple the price of power, the EPA doesn’t seem to care that it hurts people.”
Chart 3
In an April 12 report, Enverus, a top energy consulting firm, estimated that power demand for data centers will double by 2032 to 40 GW and that gas burn for Big Tech will grow by 4.2 Bcf/d by 2035. However, Enverus added that due to the EPA rules, “we believe it will be difficult to site and supply new gas-fired generation in most jurisdictions.”
That’s a key line: “Difficult to site and supply.” Enverus’ analysis is similar to that of another consulting firm, Thunder Said Energy. Yesterday, Thunder Said published a report that claimed: “AI and broader electrification will require the largest new generation capacity growth in history.” But Thunder Said also noted that even though the U.S. has more than 400 GW of gas-fired power plants operating, on average, at about 40% capacity factor, those low utilization rates do “not entail spare capacity.” In other words, the U.S. may have existing gas plants that can be used more, but there’s no guarantee that those plants are in locations that are desirable for new AI data centers.
Chart 4
One point is beyond argument: Big Tech’s power demands are headed for the exosphere. Microsoft’s electricity use has tripled since 2018. According to company data, it used 23.6 terawatt-hours of electricity last year. That’s more than what was consumed by Iceland, a country that’s renowned for its carbon-free power grid. Earlier this month, Microsoft announced it would spend over $10 billion to develop some 10.5 gigawatts of renewable energy capacity in the U.S. and Europe to help power its data centers. But even if MSFT can build loads of wind and solar, it’ll still need gas.
Chart 5
Amazon’s power demand is even larger than Microsoft’s. As I reported in Forbes in 2021, the company refuses to reveal its electricity usage. But some sleuthing shows that the company uses staggering amounts of power. In its 2022 sustainability report, it said that it was adding new renewable capacity. In a separate publication, it claimed that “once operational, Amazon’s global renewable energy projects are expected to generate 56,881 gigawatt-hours of clean energy each year.”
The chart below uses my estimates of the company’s electricity use and information from its sustainability report. At roughly 57 terawatt-hours per year, Amazon uses more electricity than Greece.
Chart 6
In February, EPA Administrator Michael Regan issued a statement on the power sector in which he said that his agency was taking a “new comprehensive approach” to the country’s fleet of natural gas-fired turbines and that the approach offers “a wide range of decarbonization options.” The same release included quotes from various Democratic politicians as well as Abigail Dillen, the president of San Francisco-based Earthjustice (2022 revenue: $135 million). That dark money group has repeatedly sued federal agencies, including the EPA, as part of their effort to hamstring the hydrocarbon industry. Earthjustice says it wants to “build an energy system that leaves fossil fuels in our past.” It also quotes Lennox Yearwood, the head of the Hip Hop Caucus (2022 revenue: $3.6 million) talking about “environmental justice communities.”
While some analysts believe the May 9 EPA rule is better than what the agency proposed in earlier drafts, the truth is that outlawing new gas-fired power plants will hamstring America’s electric grid. Indeed, gas continues to be the backbone of our electricity system. I published the chart below in “Natty Nation,” last month, but I’m using it again here for an obvious reason: the ongoing growth in gas-fired generation is swamping the increases in wind and solar.
Chart 7
The numbers in this chart surprised me. I assumed that over the past decade, wind and solar energy grew faster than gas-fired generation. That’s not the case. I used 2015 as the start date because that’s when the Senator From Big Wind, Iowa’s Chuck Grassley, declared that wind energy subsidies would be phased out. Eight years later, the wind industry still feeds at the federal trough.
Chart 8
The essential context for the new EPA rule is that regulators and grid watchers have repeatedly warned policymakers about the declining reliability of the electric grid. For instance, almost exactly one year ago, Federal Energy Regulatory Commission members testified before the Senate Energy and Natural Resources Committee. They did not mince their words.
Chart 9
Last August, the North American Electric Reliability Corporation issued a similar warning and noted that “changing resource mix” was the biggest threat to grid reliability. The group also identified policy as a key “reliability risk factor,” saying bad policy decisions “can significantly affect the reliability and resilience of the bulk power system.”
Chart 10
In February, John Bear, the CEO of the Midcontinent Independent System Operator, issued a similar warning.
Conclusion
What happens next? It’s up to the courts. On May 9, attorneys general from 27 states filed suit against the EPA. The National Rural Electric Cooperative Association and several industry trade groups have also sued. Jim Matheson, the CEO of the cooperative group, said the “EPA’s power plant rule is unlawful, unreasonable and unachievable. It exceeds EPA’s authority and poses an immediate threat to the American electric grid.” He continued, saying the agency is illegally attempting “to transform the U.S. energy economy by forcing a shift in electricity generation to the agency’s favored sources.”
The states, coops, and utilities hope a federal court in Washington, D.C., will issue a stay on the rule and prevent it from taking effect. But even if the plaintiffs get a delay in the rule’s implementation, the new EPA measure still creates uncertainty for the utility sector. That’s a big problem. Why? The litigation will take years to resolve. Uncertainty is a killer for an industry that must invest based on what it expects to see one or two decades from now.
It's too early to know what the courts will decide. But it’s apparent that the future reliability of America’s electric grid — and the future of the domestic AI sector — now depend on the wisdom of a handful of federal judges.
Please click that ♡ button. And please subscribe and share. Thanks.
In Australia it is worse. We are hurtling down the highway to hell by shuting down all coal fired power by late 2030's and making new gas supply harder to develop.
In my home state of Victoria our left wing government is going full solar and wind. Now how is that working? It is Autumn in Australia and the days are much shorter and wind drops off. So on Wednesday night we reached zero power generation from either wind or solar.
Anyone know a good supply of cheap candles?
It has been quite entertaining to see tech big reap what it has sowed. They know deep down that they can’t actually power their AI and data centers with wind and solar but they’ve been padding their pockets with all the incentives to build them out. Reality has finally caught up to them and watching them reverse course will be entertaining. My popcorn will be ready.