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Electricity Limits Could Stifle Future Development
Rapidly growing demand has magnified the urgent need for new energy policies and investment.
Commercial real estate developers are accustomed to facing hurdles created by government policy — high taxes, high interest rates and credit crunches, lengthy environmental reviews and other project delays. But another emerging challenge, particularly for industrial developers, is a lack of electricity. The reasons for concern are becoming clearer as the United States continues its shift to a more electrified economy.
A Surge in Demand
Despite the United States’ population and economic growth, national electricity demand has held steady for decades. Over the next five years, however, the U.S. is set to experience a surge in power demand not seen in a generation, from the current 4,000 terawatt hours (TWh) per year to 4,500 TWh per year, according to energy consulting firm Rystand Energy. (A terawatt is equal to 1 trillion watts.) This is due to increased electrification across various sectors of the nation’s economy.
The demand surge is being driven by rapid adoption of artificial intelligence and the need for data centers, an increase in the number of electric vehicles and required charging stations, and the anticipated reshoring and onshoring of major manufacturing facilities.
Widespread use of AI is guaranteed to spur much of the anticipated need on its own. According to a 2024 Goldman Sachs article, a typical ChatGPT query requires nearly 10 times as much electricity as a Google search. The same article projects that the energy needed by data centers will more than double in the near future, increasing from 3% of all the energy used in the U.S. in 2022 to 8% by 2030.
Electrification efforts across jurisdictions and industries are also contributing to this economic transformation. Many states and local jurisdictions (Colorado and Denver, for example) are, in effect, mandating more electricity usage through policy choices such as banning HVAC systems that use natural gas. Whether through sincere desire, for public relations purposes or both, many companies are trying to electrify their operations to lower their carbon footprints. Ironically, in Texas, some oil companies are moving to electrify their drilling operations as a means of decreasing their own carbon footprints.
Power Is Everything
In the famous “failure is not an option” scene from the movie “Apollo 13,” a roomful of NASA officials argue over the best strategy to bring back the endangered crew. NASA electrical engineer John Aaron (played by Loren Dean) understands that the stranded astronauts will not have enough electricity at their current rate of use to return safely to Earth. Fighting to get the NASA officials’ attention, he shouts, “We need to talk about power. Guys, power is everything. Without power, they don’t talk to us, they don’t correct their trajectory. … We have to turn everything off. Now!”
While perhaps not as dramatic, the point is similar in the case of electricity and the future development of data centers, manufacturing plants, warehouses, industrial centers and major projects of any kind. Absent the guarantee that sufficient electricity will be present, a project is not viable.
That is why NAIOP has made energy and the future availability of electricity a top legislative and regulatory priority in its federal advocacy on Capitol Hill in 2025. To ensure adequate energy and electricity for future commercial real estate development, changes are needed in the policy governing energy generation, transmission, and distribution. Additional federal investment to modernize the electrical grid is also necessary.
New Approaches Are Needed
For years, disagreements related to climate change and fossil fuels have stymied legislative and regulatory changes to improve the nation’s grid infrastructure. Environmental advocates largely oppose measures that might delay the total elimination of coal, oil and natural gas. Such measures include building pipelines or connecting new fossil-fuel-based energy generation projects to the electrical grid. Alternatively, advocates who favor an “all of the above” energy policy will not support measures that specifically exclude certain energy sources or favor only renewable energy.
That dynamic was tolerable as long as the overall demand for electricity remained relatively stable. With demand quickly increasing, however, the status quo is clearly untenable. Apart from the type of energy source being used — fossil fuel or renewable — it takes far too long for power generators to connect new facilities to the grid. At the end of 2023, a backlog existed of nearly 12,000 power generation projects seeking to connect to the grid, according to the Federal Energy Regulatory Commission.
Permitting reform legislation is critical to eliminating such delays. Legislation introduced in the last Congress would have shortened federal permitting timelines and reformed litigation procedures that unnecessarily delayed energy projects, but it failed to pass either chamber before the lame-duck Congress ended. Sponsors of the legislation had hoped to include permitting reform provisions in a large filibuster-proof tax and spending bill. However, budget rules prohibit language that is clearly policy and not strictly budget or tax related. Passing permitting reform legislation will continue to be a top issue.
Regional coordination and cooperation by utilities and local jurisdictions on major transmission projects need to increase. The most impactful projects often cover multiple jurisdictions. Multiple planning and siting processes can be complicated and time-consuming. Transmission infrastructure can take three to seven times longer to build than energy generation installations, and the economic benefits may not be equally shared. This creates a disincentive for utilities that must justify the costs of additional transmission capacity to their ratepayers. Congress should enact policies that enable utilities to pursue major transmission projects of strategic importance to the nation.
Finally, more federal investment in grid expansion and modernization is needed. The average age of U.S. electric grid infrastructure is second only to Europe. The policy approach should be comprehensive, emphasizing permitting reforms, increased regional cooperation and additional investment in the grid.
Commercial real estate projects are already being delayed for years, and planned developments are being scrapped because energy providers cannot guarantee electricity within reasonable time frames that would make pursuit of the projects economically viable. Congressional action is necessary to ensure adequate electrical capacity for the critical real estate and industrial development that support continued robust economic growth.
Aquiles Suarez is senior vice president for government affairs at NAIOP.
