⚡️Population? Weather? GDP? Digging Deeper on Rising Electricity Use

Electricity demand is growing faster than population and industry — but lagging GDP

A few weeks ago, I wrote about the U.S. hitting a new daily electricity usage record. One astute reader messaged me about what’s behind the surge in electricity usage beyond the hype around AI and datacenters. The reader cited population growth and weather as two factors that might explain it. So here’s a graphical over-simplification with some additional factors to consider:

Interestingly, the size of the overall U.S. economy (measured in real gross domestic product, GDP) has grown significantly faster than electricity usage. Real GDP grew a lot by historical standards after COVID. A lot of smart people criticize GDP as the grand economic measurement (or simply claim the numbers are fake), but it’s still the most widely used benchmark for economic growth. So, theoretically, a quickly growing economy can mostly explain quickly growing electricity.

However, electricity usage has outgrown the other variables. Population and industrial production both lag electricity growth by several percentage points. Total degree days — a measure of weather conditions common for building engineers — have actually shrunk since the end of 2019 (mainly because it’s getting warmer).

So what does this tell us? Probably not much! Electricity usage is growing faster than population but slower than economic activity, which seems somewhat intuitive. It suggest some level of efficiency gains (electricity usage per unit of GDP is falling).

To go deeper, I ran a simple regression model using population, weather (degree days), and industrial production. Together, these variables do a surprisingly good job of explaining electricity demand trends. Here’s an abridged version of what Excel’s handy regression analysis tells us:

These three variables (plus a constant value or “intercept”) together make an equation that predicts how much electricity the U.S. is using at any given time. The modeled values closely fit with the actual values, and the model has high R-square values.

Regardless of the precise drivers, the bigger story is that demand is climbing faster than supply. That imbalance is already showing up in higher electricity bills — a major topic circulating the interwebs lately. Electricity costs are quickly increasing and shutting down valid sources of new capacity growth isn’t helping.