Over the past 10 years or so, one of the most durable narratives in the current chapter of the Texas story is the explosive population growth we’ve been tracking – a level of growth that’s put added strain on Texas’s infrastructure, that’s to be sure.
That’s especially true for our electric grid, which was set up to operate mostly separate from the national grid. That’s created some issues to be sure, particularly during weather conditions causing demand to outstrip supply.
But there’s another issue related to Texas’ economic growth that promises to put much further strain on the state’s electrical resources.
Matt Smith, head energy analyst at Kpler, joined the Standard for a closer look. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: So the Department of Energy says Texas used twice as much energy as California and three times as much as Florida in 2023. That’s astonishing. What seems to be driving this outperformance?
Matt Smith: The first thing is the reason they’re focusing on these three states is because they are the three largest energy-consuming states in the U.S. It’s also important to bear in mind that this is total energy, so it includes transportation as well as electricity generation.
But as you were mentioning, the explosion in the population in Texas has happened over the last few years, but it’s actually outperformance from the industrial demand side of things that is driving demand higher. And so that accounts for about a half of Texas energy demand, where in California and Florida, it’s a much smaller sliver. They’re much more focused on commercial and residential demand, as well as transportation.
Now, just to bear in mind, when we talk about industrial demand, that’s Texas’s energy-intensive chemical manufacturing, oil and natural gas extraction, production, petroleum refining, agricultural industry. So it’s all of the behemoth of industry, right?
Well, yeah, but I thought that you were going to be pointing to something else and that’s the explosive growth that Texas has seen in artificial intelligence and these data centers which have sprouted up all over the state. In fact, it seems like the state is going out of its way to position itself as the capital for AI, or at least the backbone that supports that AI infrastructure, these huge data centers.
Yeah, and so there’s a number of areas across the U.S. that can do this. Texas, Louisiana, Virginia, etc, are kind of obvious ones to locate these data centers, just because of the natural resources available, right? So you have the Permian Basin, etc. So you have access to natural gas, to other resources. And so that’s part of it.
If we kind of take a step back, though, industrial demand in the past [has] been from these traditional sources, right. Going forward, ERCOT, who operates the state’s power grid, they’re predicting energy demand in Texas could double by 2030. And the largest percentage of that projected energy demand growth comes from data centers.
And so, yes, it’s going to be a current and future story as opposed to have been something in the past.
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Well, what about the power generation mix for Texas? Is anything changing on that front?
And you know, as you look at these three states, are there any comparisons? Somebody doing it better than than we are right now? And of course, there’s been a lot of focus on the fact that we are not fully integrated with the national grid.
Well, renewables is a big piece for California, right? They’re very environmentally friendly, they’ve been focused on solar so much. It’s the largest generator of solar power in the U.S. But then it’s followed by Texas and Florida, actually, in second and third place.
And then when you talk about wind power, Texas is a leading source for that – accounts for up to a third of total U.S. wind power generation.
But it’s just a story of of size, right? So when we talk about Texas, they consume more coal, natural gas and petroleum than any other state, right, but is also second only to California in terms of renewable energy consumption.
So yes, the mix is changing, but Texas is consuming all of these things – like half of the power generation is met by natural gas right now, about 22% by winds, and 8% by solar, 30% from wind and solar, 12% coal, 7% nuclear.
But Matt, if you step back further – and you were talking earlier about how we’re looking at double the demand by 2030, I think you you were saying… What are the long-term fixes?
It’s got to be everything, right? It’s gotta be a combination of those factors.
The challenge still remains with solar and wind is that it’s not baseload for power generation. So there is much more emphasis going forward here on the solar side of things, but it’s emphasis across these various different commodities I’ve mentioned to meet this need.
One thing to bear in mind, too, is that this demand growth is not just coming from data centers, but is coming from an ongoing increasing population in Texas. Cryptocurrency mining, hotter weather… There’s a number of factors, right?
It’s not just hinging on these data centers, it’s going to be coming regardless, given the variety of demand pulls going on here.
Correction: A photo caption accompanying this story previously had an incorrect number for how many customers are managed by ERCOT. It monitors the electric grid and power flow for more than 27 million Texans.
