October 18, 2024 - EPA’s power plant rules and rising electricity demand are on a collision course.

Analysts are increasingly concerned about the power sector’s ability to keep pace with mounting electricity demand while satisfying EPA’s new limits on carbon dioxide pollution from power plants. Those concerns were thrust to the forefront this week amid numerous forecasts of larger-than-expected energy demand — and the Supreme Court’s decision to keep the EPA rule in place, for now, as litigation continues.

The high court’s decision came on the day the International Energy Agency said its forecast for global electricity demand in 2035 had increased 6 percent over last year’s estimate. A day later, Wood Mackenzie released a report that predicts parts of the U.S. could see power demand increase 15 percent by the end of the decade, driven by power consumption from new data centers, factories and transportation electrification.

“If the EPA rules get implemented as proposed, that will be yet another constraint on the system that makes it more difficult and expensive to meet the demand growth,” said Chris Seiple, Wood Mackenzie vice chair of energy transition, power and renewables.

EPA’s power plant rule would limit CO2 from existing coal power plants and new natural gas facilities. Coal plants planning to operate after 2039 would be required to install carbon capture and storage (CCS) by 2032, as would new gas plants coming online that year. Coal plants that plan to only operate through 2039 would be required to co-fire with 40 percent gas after 2030.

The fight over the rules is set to continue, with lawsuits playing out in the U.S. Court of Appeals for the District of Columbia Circuit. Some utilities and grid operators say the rules threaten the reliability of the country’s electric grid at a time when power demand is growing.

But supporters of the rule say it is critical to achieving the climate goals set by President Joe Biden and argue it provides enough flexibility for power companies to overhaul their systems without endangering reliability.

The debate comes at a time of immense change in the power sector. Power demand through the end of September is up nearly 3 percent compared to the same time last year, according to preliminary U.S. Energy Information Administration figures. The rise in power demand reverses decades of stagnant load growth and offers a temporary reprieve to a coal industry that has been in steady decline.

“I don’t see how we comply with that wide-scale CCS requirement if we are to really have this 4-5 percent (annual) load growth,” said Harrison Fell, a professor who studies the industry at North Carolina State University.

In a report this week, Moody’s Ratings said data centers will stoke additional demand for natural gas and coal.

It estimated power demand from data centers could grow from 17 gigawatts in 2022 to 35 gigawatts in 2030. While nuclear, renewables and battery storage will supply most of that power, the ratings agency estimated that 20 GW of new gas capacity will also be needed to balance data center demand.

Coal also stands to benefit, with plants slated to retire staying online longer, Moody’s said. Even so, the agency predicted the benefits to coal would be limited because of a “lack of coal-fired power generation near the proposed or existing large data centers coupled with the challenges of constructing new coal-fired generation plants.”

While rising power demand presents a challenge, there is little reason utilities can’t meet EPA’s new standards, said Mike O’Boyle, an electricity analyst at Energy Innovation, a research firm that supports the transition to clean energy. Coal remains fundamentally challenged by low natural gas prices and cheap renewables. Battery storage is coming online quickly.

“The big problem right now really hinges on interconnecting resources in the queue fast enough,” O’Boyle said.

If EPA’s rule sticks, he predicted it will put more pressure on utilities and grid operators to reform their processes for connecting energy to the grid, making it easier to bring clean resources online quicker.