Creaky Grid Will Get Creakier
Leonard Hyman & William Tilles

Back in the dark days of Covid, we wrote a paper that said the electricity industry was spending only a fraction of what it needed to spend to modernize plant and get ready for climate change. Now, more than six years later, industry spending is getting closer to the required number set back then but prices have risen at least one third since then, so necessary capital spending is still far behind. Since then, prospects for new loads have improved, making another reason to worry. Waking up after two decades of torpor and catching up doesn’t happen overnight.

In December 2024, the North American Electric Reliability Corporation, the nation’s reliability monitor, issued an assessment that stated that the reliability risk for 2025-2029 in 11 of the 20 reliability areas was “elevated to high.” And that was before AI suddenly loomed as a big taker of electricity. AI has destabilizing characteristics, incidentally, so it doesn’t help the reliability picture. 

In Europe, in recent days suffering a heat wave, several nuclear power stations had to shut down because the river water used for reactor cooling was too warm. We doubt this sort of situation was taken into account in the planning of the nukes, and we doubt its contemplation is in those reliability numbers. Who would have thought….?  And it will be even harder to think of it in a country where climate change has been declared officially nonexistent, more or less.

A few days later, the head of Hitachi Energy, the world’s largest manufacturer of electric transformers predicted a shortage of transformers over the coming three years. Transformers control the voltage where the generator attaches to the transmission network and where the transmission network attaches to the distribution network. Talk about a quintessential equipment bottleneck!  The Hitachi CEO also commented that AI centers would contribute enormous variability to grid demand and might require permission to operate during certain periods.  Everyone wants an AI center in the neighborhood. Do they want what comes with it?

We cannot predict what natural event unexpected by the industry will affect service, or whether some Silicon Valley techie will  discover a cheap substitute made in the USA for a transformer. but we can advise that if your organization will need a large block of reliable power in the future, don’t bet on the grid, and don’t bet on fusion energy which is a minimum of five years out,  just get to work on it yourselves. The electricity industry may be too busy searching for transformers and ice cubes.

By Leonard Hyman and William Tilles for Oilprice.com

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and has provided advice on industry organization, regulation, privatization, risk management  and finance to  investment bankers,  governments and private firms, including one effort to place nuclear fusion reactors on the moon. He is a Chartered Financial Analyst and author, co-author or editor of six books including  America’s Electric Utilities: Past, Present and Future and  Energy Risk Management: A Primer for the Utility Industry. 

William I. Tilles is a senior industry advisor and speaker on energy and finance. After starting his career at a bond rating agency, he turned to equities and headed utility equity research at two major brokerage houses and then became a portfolio manager investing in long/short global utility equities. For a time he ran the largest long/short utilities equity book in the world. Before going into finance, Mr. Tilles taught political science .

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