Economic growth now depends on electricity, not oil

In coming years, though, energy security will mean electricity.

Power demand, stagnant for decades, is now growing rapidly, for data centers to run artificial intelligence and other digital services and, in time, transportation and buildings.

An economy dependent on electricity will be different from one dependent on oil. It will require mammoth investment in generation, distribution and transmission. It will challenge regulators and political leaders, as the supply and price of electricity become as politically potent as that of gasoline.

You can see the imprint of the electric economy on the outskirts of Gloucester, Va., where less than two years ago Dominion Energy, the state’s main utility, completed a 175-acre solar facility on what used to be a tree nursery.

When Ross Millikan joined Dominion Energy’s renewables unit in 2015, its service area had no operating solar facilities. His staff of 80 now oversees 58, including the Gloucester site.

“We used to think of ourselves as kind of a startup sitting in an old utility," said Millikan, 38 years old. “Now it’s much more the bread and butter for us and the company."

The heyday for electricity was the 1950s and 1960s, when appliances and air conditioning fueled annual demand growth of about 8% a year, according to Grid Strategies, a power-sector consulting firm.

By the 2000s, slowing population growth, a dearth of new technological applications, and increased efficiency brought growth to under 1% a year. But growth jumped to 3% last year and will continue at that rate for the next five years, Grid Strategies projects.

The firm estimates that since 2022, utilities have raised expected peak demand for summer 2029 by 12%, or 101 gigawatts. The drivers are data centers for AI, cloud computing and cryptocurrency; new factories; and the gradual adoption of electric vehicles, heat pumps, and hydrogen production.

Dominion plans to double generation capacity over the next 15 years to 56 gigawatts, much of that to power Northern Virginia’s “Data Center Alley." Solar is expected to account for 45% of that, requiring the construction of numerous new facilities every year.

The U.S. and the world will need plenty of oil and gas for decades to come, and the shale revolution has ensured that the U.S. will be a dominant producer of both.

But they are becoming less important to the U.S.’s domestic needs. Consumption of petroleum liquids (such as gasoline, jet fuel and heating oil) has been flat for two decades, and of natural gas—excluding gas used to generate electricity—since 2018. The U.S. Energy Information Administration expects petroleum and natural-gas consumption to grow less than 1% a year for the next two years.

The meaning of energy security is changing

With oil, an interruption to supply in any part of the world could ripple ashore in the U.S., even once it became a net exporter, which has long influenced U.S. foreign and security policy.

Electricity comes from almost entirely domestic sources—coal, gas, nuclear, hydro, wind, solar and geothermal—insulating it from foreign influences or interruptions to any single fuel source. At night, the electricity that no longer flows from the solar panels in Gloucester comes from Dominion’s nuclear and gas plants and, in the future, batteries. “There’s no single power source that’s going to reliably serve all of our customers," said spokesman Aaron Ruby. “We need nuclear, we need natural gas, we need renewables."

The threats to electricity security are different: extreme weather and other disasters; sharp fluctuations in demand, such as from cryptocurrency mining; or weather that reduces solar and wind power.

An electric economy needs capital

Most of the cost of oil and gas is the fuel itself, whereas for electricity it’s the generation, transmission, storage and distribution infrastructure. Oil-and-gas extraction and refining contribute twice as much to gross domestic product as utilities, but electric utilities alone invest 50% more in plant, equipment and technology.

So the electric economy needs a lot of real estate and equipment, both of which have been in short supply. “We’re buying 10 times as much electrical equipment as a few years ago. We’re very short on transformers and the other basic equipment that goes into substations," said Rob Gramlich, president of Grid Strategies. “The companies that were manufacturing those things five to nine years ago were looking at very low demand, laying people off and turning to other things."

Those shortages drive up costs, which can get passed on to ratepayers. If expected demand doesn’t materialize—some have warned of a data-center bubble—the cost of unneeded capacity will also be shifted to customers.

Regulation matters more

Unlike oil, electricity is heavily regulated, at the local, state and federal level. A utility needs permission to hook up a new generating source to the grid, and the median wait time for such “interconnection" applications was five years in 2023, according to Lawrence Berkeley National Laboratory.

Meanwhile, permitting new infrastructure is getting harder. “There’s universal understanding on the need for transmission but very few concrete solutions to get over" the obstacles, said Timothy Fox, managing director at ClearView Energy Partners, a research firm.

Electricity, like oil, has also become deeply politicized. Democrats and progressives put up barriers up to natural-gas fracking and pipelines while subsidizing or mandating renewables. Republicans and conservatives are now doing the opposite.

The Trump administration has moved to roll back greenhouse-gas restrictions on fossil fuels and boost natural-gas pipelines while suspending permits for offshore wind and considering an end to clean-energy subsidies. Fox said many Republican-leaning states have empowered municipalities to stop renewable projects, and under President Trump, the Federal Energy Regulatory Commission is less likely to approve transmission lines over the objections of states.

Our economy is being transformed by the new era of electricity. Our politics, not so much.

Write to Greg Ip at greg.ip@wsj.com