U.S. May Face an Electricity Shortage, Especially California — Here's Why

Mohit Oberoi, CFA - Author
By

May 9 2022, Published 8:14 a.m. ET

Consumers in the U.S. as well as globally have gotten used to shortages over the last two years. After reports of diesel shortage on the East Coast, now there are fears that there could be a shortage of electricity in parts of the U.S., especially in California.

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Globally also, several countries are battling an electricity shortage as key fuels like coal and natural gas have been in short supply. Amid fears of a possible electricity shortage in the U.S., many argue that President Joe Biden's renewable energy pivot is to blame for the situation. Others think that the shortage is a result of climate change, which is what Biden is trying to address with his energy policies. The truth might lie somewhere in the middle.

Biden has been focusing on energy policies.

Unlike his predecessor Donald Trump, Biden is a green energy enthusiast. He rejoined the Paris Climate Deal, canceled the Keystone Pipeline, announced billions of dollars of investments into EV charging infrastructure, and mandated that the federal fleet be converted to zero-emission vehicles.

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Biden's policies are in stark contrast to Trump who's a climate change denier. If anything, he supported more oil and gas drilling and even removed the coal mining ban on federal land. Coal is among the dirtiest energy sources and countries globally have been trying to phase out the fossil fuel for cleaner energy sources.

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California could face an energy shortage.

When it comes to the renewable energy pivot, California probably takes the lead. The state has supported the transition towards cleaner sources of energy. However, the state is facing an electricity shortage. California's grid operator has said that the region could face an electricity shortage as soon as 2022.

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Nuclear energy is key to dealing with an electricity shortage.

Incidentally, California might now let the Diablo Canyon nuclear plant operate for more time amid fears of electricity shortage. Several other nuclear power plants in the U.S. are aging and their retirement could put more pressure on the country’s electricity supply.

Germany took an extreme step and closed down its nuclear power plants with the last of the operating plants set to close by 2022. This increased the country’s reliance on gas-powered power plants, and by extension on Russian gas imports.

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Renewable energy generation hasn’t been keeping pace.

Renewable energy generation hasn’t been keeping pace. First, the global supply chain, which includes renewable energy like solar and wind, has been under severe stress. The Department of Commerce has halted imports of key components required for building solar farms amid allegations that Chinese companies are circumventing the tariffs.

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Climate change is putting strain on electricity grids.

Extreme weather conditions, including heat waves and winter storms, are becoming more common. This puts pressure on electricity grids. There have been instances where the grid hasn't been able to meet the demand.

Who is really to blame for the electricity shortage in the U.S.?

Those on the right of the political divide blame Biden’s policies for compromising U.S. energy security. Liberals blame climate change since it's the driving factor behind peak electricity demand, which then puts pressure on the grid.

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Businesses blame the trade war and the ongoing supply chain issues, which have only worsened in 2022 amid the Russia-Ukraine war and the lockdowns in China.

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In reality, all these factors are to blame for the electricity shortage. While Biden’s green energy pivot was needed to address climate change over the long term, the geopolitical environment has changed. There have been intermittent shortages of coal as well as natural gas amid supply chain issues.

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Supply chain issues have hit renewable energy generation.

Extreme weather conditions have been common over the last few years while electricity demand bounced back sharply from the 2020 lows. New renewable capacity hasn’t kept pace partially due to supply chain issues.

While the green energy pivot was needed, the timing, as it turns out, has been bad. Biden might also need to readjust the administration’s priorities to address the short-term issues around electricity shortage while balancing it with the long-term green energy pivot.

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