US grid investments take off as power demand hikes

Huge investments in U.S. power transmission are needed to allow the rapid expansion of AI capacity and reduce carbon emissions. Easing the bottlenecks will take billions - read on to find out more.

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US grid investments take off as power demand hikes

Utilities, power grids and private companies are investing in transmission to meet soaring demand from AI and clean power plants.

Investors are scrambling to build transmission infrastructure to meet surging power demand from data centers and accommodate a vast array of clean power projects waiting in grid connection queues.

Demand for clean power hiked on the back of falling costs, federal tax credits and ambitious renewable energy targets, leading to over 2.5 TW of solar, wind and storage projects in U.S. grid connection queues at the end of 2023.

On top of this, forecast demand from data centers has soared as tech groups chase growing AI capacity, putting further pressure on grid capacity. Demand from data centers is forecast to double within five years, rising from 176 TWh in 2023 to between 325 and 580 TWh in 2028, government data shows. U.S. electricity demand is expected to increase by 3% annually for the rest of the decade – a rate of growth not seen since the 1990s.

Grid projects require years of planning, permitting and construction, and the rapid increase in data center demand has emphasized the need for faster buildout.

Any U.S. regions that fail to expand transmission capacity will see their power systems “significantly constrained,” said Dan Gunderson, VP of Transmission and Distribution at utility Minnesota Power.

? ? Annual spending by US utilities on new capacity

The administration of former President Joe Biden sought to modernize the grid through new policies and $8 billion in funding to over 100 transmission projects.

“Those federal funds are just a bit of seed money to get some key projects ahead but there is enough capital willing to invest on transmission,” Hannes Pfeifenberger, a principal at Brattle Group consultancy, told Reuters Events.

President Trump has sparked uncertainty in the clean power sector by issuing a flurry of executive orders after entering office on January 20 that aim to rolling back Biden's climate agenda and boost fossil fuel production. Trump called for a review of energy sector funding issued under Biden's 2022 Inflation Reduction Act and the 2021 Bipartisan Infrastructure Law, but he also vowed to ease permitting hurdles for power transmission and pipeline projects and has supported massive buildout of infrastructure for AI data centers.

“We see a significant demand for long-term transmission investment. If anything, recent announcements from the new administration, which are supportive of generative AI, continue to affirm the long-term case for power-demand growth and the associated need for transmission investment,” said Jon Treitel, a Senior Director at CBRE Investment Management.

Grid income

Most transmission investments are guaranteed a rate of return by federal regulators, but margins can be higher for so-called merchant projects that provide returns based on power prices.

The need for new transmission investments fueled by load growth has attracted private equity firms to the sector. In May 2024, Canada Pension Fund and Global Infrastructure Partners agreed to buy Allete, which controls Minnesota Power, for $6.3 billion.

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Strong government support for large transmission projects will likely continue under President Trump, Pfeifenberger said.

“Transmission is a bipartisan issue. Blue states may seek to increase transmission because of their clean energy goals, while red states could prioritize policies to attract data centers,” he said.

Some grid investments could be impacted by any significant moves by Trump to curtail investments in renewable energy generation, Pfeifenberger warned. Trump could slow the permitting or leasing of solar and wind projects or dismantle Biden clean power incentives and this would likely "reduce transmission investments since gas plants can be built closer to load centers,” he said.

Grid operators invest

Transmission investments will be spurred by Order 1920, a rule issued by the ?Federal Energy Regulatory Commission in May 2024 that requires regional transmission organizations (RTOs) to issue long-term investment plans.

Many transmission operators have unveiled hefty investment plans. In December, the Midcontinent Independent System Operator (MISO) announced a $22 billion investment to install high-voltage transmission lines in the Midwest, in addition to the $10.3 billion in transmission projects that it approved in 2022.

Power generation in grid connection queues at end of 2023

Southwest Power Pool (SPP) approved $7.7 billion in transmission projects in October and PJM, which operates the largest network mostly in eastern U.S., is in the process of approving around $6 billion in transmission investments. Key clean power states including California, Texas and New York — where Con Edison is building the $810 million Brooklyn Clean Energy Hub — have also announced large transmission projects in recent years.

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The optimization of new power generation benefits consumers, as well as developers.

New England states are pursuing a portfolio of transmission and battery projects that last year secured $389 million in federal funding, including a grant for utility Eversource Energy to build a switching station in Connecticut to distribute up to 2.4 GW of offshore wind capacity.

These kinds of infrastructure investments effectively “allow generators to share the costs of transmission investments, reduce project risks and lower prices for consumers,” Vandan Divatia, Vice President of Transmission Policy at Eversource, told Reuters Events.

Grid enhancements

Federal Order 1920 also encourages faster rollout of technologies that enhance current existing grid networks, avoiding the obstacles faced when planning new transmission lines.

“We can get at least 50% more out of the existing grid with grid enhancing technologies, power flow control devices and high performance conductors that can help RTOs address the rapid load growth that's coming and do so at a lower cost,” Pfeifenberger said.

Minnesota Power will seek to install grid enhancement technologies such as Static Synchronous Compensator (STATCOM), which is used to stabilize the grid when more intermittent sources of generation are added, Gunderson said.

The utility wants to expand existing corridors and/or replace existing facilities rather than build new infrastructure because the siting and routing of new projects is “always challenging due to the size of structures and substations within proximity of inhabited areas,” he said.

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Advanced conductors can double transfer capacity of existing lines and reduce losses within months, versus several years for new infrastructure, Theodore Paradise, Chief Policy and Grid Strategy Officer at conductor supplier CTC Global, told Reuters Events.

California, Massachusetts and Montana have rolled out policies encouraging utilities to prioritize grid enhancement technologies and advanced conductors but adoption is lagging compared to other markets like Europe and Asia, Paradise said. A lack of transmission infrastructure could see lead tech groups look to build data centers elsewhere.

“The growth load is occurring now but the transmission would be built in seven to ten years,” Paradise said. "We need stronger messaging from regulators to ensure that utilities prioritize advanced conductors because otherwise we won’t be able to build transmission at the pace we need."

Permit challenge

Gaining approvals for long-distance powerlines remains a significant challenge and faster permitting procedures are key to meeting rising demand in the coming years.

The Biden administration introduced measures aimed at improving coordination between government agencies and streamlining environmental approvals, and on January 14 Biden issued an executive order to accelerate construction of clean power and transmission infrastructure on federal land available to AI data centers.

In December, President Trump vowed to streamline permitting for all investments over $1 billion, which could accelerate big transmission projects in areas designated as National Interest Electric Transmission Corridors and on federal lands, especially in western states, Pfeifenberger said.

Some states are acting to reduce long-wait times for state and local permits. Massachusetts in November 2024 passed a law mandating a one-stop siting and permitting process in under 15 months to accelerate the construction of clean energy and transmission projects. Other states should follow suit, Divatia said.

Faster buildout of interregional power lines is also needed to send power from areas with high solar and wind resources to large load centers. These allow utilities to deliver excess capacity to other areas, ensuring greater security of supply for power networks and minimizing energy costs for consumers.

Doubling interregional transmission infrastructure would lead to at least $270 billion in cost savings through 2050, according to the Department of Energy (DOE).

In November, the North American Electric Reliability Corporation (NERC) recommended the U.S. builds an additional 35 GW of interregional power transfer capability by 2033 to avoid energy shortfalls.

This finding should help spur new projects, but they take many years to complete and power shortages in Texas during the winter storm Uri in 2021 highlighted the urgent need for transfer capacity between regions, Pfeifenberger said.

"Can we build all this transmission infrastructure fast enough?’ Probably not, but if we fail to do so we’re just going to need to build more generation,” he said.

Reporting by Eduardo Garcia

Editing by Robin Sayles