Electricity Is the New Oil: A Fundamental Shift in the Energy Economy

The definition of energy security is evolving. For generations, economic might and national policy were constructed on oil—the power to tap and dominate fuel resources dictated foreign relations, commerce, and industrial development. But as the world economy becomes more digital and electrified, electricity becomes the new foundation of economic growth.

This change is not merely about energy but infrastructure, investment, and how we prepare for tomorrow. Today's drivers of electricity demand—AI, data centers, electric vehicles, and industrial automation—are generating new pressure on utilities, policymakers, and technology leaders.

The Resurgence of Electricity Demand

Following decades of stagnation, electricity consumption in the United States is now increasing at levels not experienced since the mid-20th century. According to Grid Strategies, an advisory firm for the power sector, electricity consumption grew by 3% last year and is expected to persist until 2029.

Several industries are behind this surge—most significantly, the explosive growth of data centers for artificial intelligence and cloud computing, as well as the increasing use of electric vehicles, heat pumps, and new technologies such as hydrogen production.

Utilities are accelerating their capacity projections to keep up with this demand. Grid Strategies estimates that since 2022, U.S. utilities have added 101 gigawatts to their projected summer peak demand for 2029.

A Utility’s Transformation in Real Time

Dominion Energy, the primary utility company serving Virginia, is a prime example of this transition. Not more than a decade ago, Dominion operated no operational solar plants in its service zone. Currently, the company has 58 facilities under its management, including a 175-acre facility in Gloucester, Virginia, managed by Ross Millikan, Renewable Operations Manager.

When Millikan arrived at Dominion's renewables arm in 2015, it was like being part of a startup within a stodgy utility. That's no longer the situation. Solar power, says Millikan, is "bread and butter" for Dominion—and for good reason. The utility intends to double its capacity in the next 15 years to 56 gigawatts, with virtually half of that coming from solar power. A large amount of the growth is set to fuel Northern Virginia's vibrant "Data Center Alley"

Infrastructure: The Real Cost of the Electric Economy

Electricity's cost pattern is unlike that of oil. Fuel forms the majority of the cost of oil and gas. The facilities—generation, transmission, storage, and distribution—require the most electricity investment.

Grid Strategies President Rob Gramlich points out the dilemma: utilities purchase ten times as much electrical equipment today as they did a few years ago. However, since demand has stagnated for so long, numerous manufacturers have downsized or left the business altogether. This has led to equipment shortages, especially for essential items such as transformers, increasing costs.

These increased expenses would ultimately be passed on to customers. If part of the expected demand—particularly from crypto and AI data centers—does not pan out, utilities stand to overbuild and leave behind stranded assets.

Energy Security, Redefined

Unlike oil, electricity is produced nearly exclusively from local sources—natural gas, nuclear, solar, wind, hydro, coal, and geothermal. This provides electricity with a singular benefit: it is shielded to a significant extent from international geopolitics. However, as Aaron Ruby, spokesperson for Dominion Energy, continues, one size does not fit all. "We need nuclear, natural gas, we need renewables," Ruby says, underscoring the need for diversification and redundancy to be reliable.

That's because the electrical grid is also vulnerable to various other factors, such as wild weather, delayed supply chains, spikes in demand from industries such as cryptocurrency mining, and the variability of renewables.

Solar panels at Dominion's Gloucester facility don't generate electricity at night. The utility's nuclear and natural gas generating plants and, eventually, battery storage devices cover that energy gap.

Regulation and Political Complexity

Electricity needs investment and regulatory coordination. In contrast to oil, which can be extracted and transported relatively autonomously, adding a new power source to the electric grid must be approved by extensive local, state, and federal authorities.

According to the Lawrence Berkeley National Laboratory, the median wait time for interconnection applications was five years in 2023. At the same time, approving new transmission lines—necessary for transferring power from wind and solar projects in rural areas to load centers in cities—is becoming more challenging because of legal, environmental, and political issues.

Timothy Fox, Managing Director of ClearView Energy Partners, sees that few solutions are being implemented despite broad consensus on expanding transmission. Political polarization plays a role as well. Fluctuating federal priorities have toggled favor between fossil fuels and renewables, causing uncertainty for energy planners and investors alike. Fox notes that red and blue states now shape energy infrastructure through legislation, complicating long-term planning.

Final Thoughts

The American economy is on the cusp of a new age—one measured not in barrels of oil but in gigawatts of electricity. New infrastructure, refreshed regulation, robust supply chains, and concerted investment across industries will power the future.

Acknowledgment:

This article is based on Capital Account columnist Greg Ip's original article in The Wall Street Journal. It features contributions and insights from Ross Millikan and Aaron Ruby of Dominion Energy, Rob Gramlich, Grid Strategies President, Timothy Fox, Managing Director at ClearView Energy Partners, and research from Lawrence Berkeley National Laboratory and the U.S. Energy Information Administration (EIA). The organizations featured are Capital Account, Dominion Energy, Grid Strategies, and ClearView Energy Partners.

We gratefully thank all those persons and institutions whose contributions and advice assisted us in rewriting this article.

Read the original article here: “Economic Growth Now Depends on Electricity, Not Oil”