EP02 Where are we going to get the energy folks?

Summary:

In this episode, we explore the growing energy demands facing the United States, highlighting three key contributors: reshoring manufacturing, the AI/Chip war, and the transition from high-density to low-density energy sources. We discuss how reshoring efforts are driving significant infrastructure development as well as new manufacturing facilities, requiring substantial energy consumption. The AI/Chip war, characterized by a surge in computing power and semiconductor fabrication, also demands substantial energy. Furthermore, the shift towards intermittent energy sources like wind and solar presents challenges due to their lower energy density and intermittency. We conclude by emphasizing the growing energy needs and the potential dangers of a mismatch between increasing demand and the transition to less reliable and less dense energy sources.

Questions to consider as you read/listen:

1. What are the competing priorities driving increased energy demand in the United States?
2. How will the shift to lower energy density power sources impact the ability to meet future energy demands?
3. What are the potential consequences of these trends for the US economy and standard of living?

Long format:

In January 1848, historian, philosopher and statesman Alexis de Tocqueville addressed the French parliament regarding unease in Paris: “I believe that we are at this moment sleeping on a volcano.“

I fear that we, the US, are sitting on top of a volcano. The volcano is a confluence of three separate and distinct priorities that are competing for one finite thing: energy/power.

The three competing interests are: reshoring, AI/CHIP war and political desire to move from high density sources of power to low density intermittent sources of power.

RESHORING

Currently, we are in a period of rapid and truly unprecedented growth in America because we have made a decision to reshore our manufacturing and to try to be less dependent upon far-flung supply chains involving countries that we prefer not to involved with. This decoupling and reshoring to bring back manufacturing to the US requires a lot of build-out. As of February 2024, annual investment in new manufacturing facilities hit nearly $225 billion dollars, a record high even after adjusting for inflation.

But there is more because of the truly amazing infrastructure rebuilding we are underway with in America as well. That of course takes a lot of energy/power too. Just a quick look at one small subset of the scope of this buildout can be seen in that spending on new road construction will reach approximately 153 billion U.S. dollars by 2027. This does not include any other or exiting infrastructure just new roads.

The era of flat power demand is over. According to FERC filings in 2023, grid planners forecast peak demand to increase to 4.7% over the next five years with many analysts calling this a gross underestimate. (https://gridstrategiesllc.com/wp-content/uploads/2023/12/National-Load-Growth-Report-2023.pdf) This an 81% jump over the previous forecast. Staggering. A lot of it has to do with construction and buildout.

AI/CHIP WAR

By 2030, AI is expected to represent 3.5 percent of the global electricity consumption, and 9 percent of electricity generation in the United States (a sharp increase from the country’s current rate of around 3.5 percent – already a hefty amount). Put together, electric vehicles and AI are on track to add 290 terawatt hours of electricity demand to the United States energy grid by the end of the decade according to projections by Rystad Energy.

Yet even those who all “see” and agree on this have no concept at all how much energy AI sucks up or sure act like they don’t.

For example, Microsoft and OpenAI are planning on building a $100 billion data center, according to reports. Initial reporting suggests it may require five gigawatts of power, or roughly the equivalent of five nuclear reactors. Five! That’s just one project at the dawn of this race. Right now, in Chantilly, VA the AI center used by our government and contractors already takes up 2% of the entire US grid’s worth of energy. 2% already!

The amount of energy that chip fabrication takes is likewise astonishing. The world's leading semiconductor manufacturer, TSMC, consumes more electricity than some U.S. states. Taiwan already faces its own electricity challenges because of semiconductor manufacturing. Experts predict the island’s reserve capacity may dip below the recommended 10% emergency margin the government says is necessary. We can use that as a model as we are trying to rival or replace them by building our own fab sites here in the US. All in all, Taiwan Semiconductor Manufacturing Company (TSMC) consumed nearly 25,000 gigawatt-hours of energy in 2023, which was a 10.4% increase from 2022. TSMC is one of Taiwan's largest consumers of power, accounting for about 9% of the island's electricity. Let’s consider just one of the 21 scheduled fabrication plants planned for construction in the US. Just the first phase of TSMC’s Phoenix facility will create 200 megawatts of demand, the equivalent of powering nearly 30,000 households. The manufacturing giant plans to build up to five additional fabs on the same site. Information from the Arizona Public Service Company (APS) places the final demand from plant operations at an eyewatering 1,200 megawatts.

AI chip fabrication and AI use, that is a lot of energy.

SWITCH FROM HIGH DENSITY RICH SOURCES OF POWER TO LOW DENSITY INTERMITTENT SOURCES OF POWER

A beautiful book on this that is a real eye opener that will explain these concepts and provide all that you need to know on energy and power density and why it matters is Power Density: A Key to Understanding Energy Sources and Uses (MIT Press) by Vaclav Smil. I CANNOT recommend this book highly enough. After you are done reading all of Peter Zeihan’s books first, of course. Smil argues that the high energy/power density of fossil fuels like coal and oil has been a key factor in the rapid development of modern society due to their ability to deliver large amounts of energy in a compact form.

Simplified significantly, higher energy/power density means more energy stored in a smaller space or more power generated in a smaller physical area.

Power density is calculated by dividing the total power output by the volume it occupies.

Approximate power densities (in MJ/kg):

• Nuclear: ~ 80,000
• Hydrogen: ~ 120 in theory
• Natural Gas: ~ 50
• Gasoline: ~ 45
• Kerosene: ~ 43
• Propane: ~ 26
• Coal: ~ 24
• Geothermal ~ 10-20
• Hydroelectric: ~ 0.01
• Wind Turbines: ~ 0.01
• Solar: ~ 0.001

Why does switching from high density rich sources of power to low density intermittent sources of power matter?

Intermittents (wind and solar), as politically popular as they are, are not the solution as they are truly intermittent energy sources and what people don’t understand is the concept of energy (power) density, transmission, availability, start-up time, consistency, un-subsidized cost of energy per MJ, and energy loss from conversion/transmission and basic physical restrictions of where it works versus where it’s needed. But it is our political decision in the US. Less power density, intermittency coupled with an overwhelming need for more and more power is a formula for disaster.

BOTTOM LINE

With these three competing interests, where are we getting the energy folks? How do we keep our current standard of living, re-shore, grow and “win” the AI race and transform to lower energy density?

Sources:

https://ketiv.com/blog/whats-driving-manufacturing-reshoring-and-is-it-in-americas-best-interests/#:~:text=The%20trend%20towards%20manufacturing%20reshoring,return%20home%20for%20many%20manufacturers

https://www.jec.senate.gov/public/index.cfm/democrats/2024/4/fact-sheet-the-manufacturing-renaissance-that-will-drive-the-economy-of-the-future

https://www.utilitydive.com/news/electricity-load-growing-twice-as-fast-as-expected-Grid-Strategies-report/702366/

https://www.statista.com/statistics/1312965/tsmc-energy-consumption-by-source/#:~:text=Published%20by,of%20water%20saved%20also%20increased

https://english.cw.com.tw/article/article.action?id=3766#:~:text=The%20number%20at%20the%20end,dipped%20by%201%25%20in%202023