The United States faces an energy crunch of historic proportions. After nearly 20 years of flat demand, electricity use is now growing at its fastest rate since World War II. The U.S. economy increasingly relies on electricity to heat and cool homes, to power businesses and factories, and to propel cars, trucks, and buses. New manufacturing facilities, such as those making semiconductors, and the data centers that undergird the country’s artificial intelligence ambitions consume unprecedented amounts of electricity. In total, over the next decade, the North American Electric Reliability Corporation, the independent regulator tasked with monitoring grid reliability, projects that national peak electricity demand will increase 18 percent from today’s levels—nearly the equivalent of adding the total current demand of California, New York, and Texas combined.

The surge in electricity demand is not inherently a problem. It reflects the technology-fueled progress that electrification can deliver. But rising demand is already starting to drive up electricity prices and push the grid to its limits. Without rapid action, consumers will pay more, businesses will be less competitive, and the country will risk losing its lead in technological innovation and advanced manufacturing.

Although the United States must build new power plants, these alone cannot produce enough electricity fast enough to meet skyrocketing demand. Another solution, however, is readily available: squeezing more out of the existing electric system. U.S. energy infrastructure has much more to give. On average, roughly half the electric infrastructure in the United States sits idle at any point in time. This is because the U.S. electric system was engineered for moments of intense demand—the rare episodes of extreme heat or cold when the need for electricity peaks—not for delivering power to consumers in the cheapest and most efficient way. What has resulted is a system full of inefficiencies and lost potential.

The technology to get more out of the system already exists. Batteries can store excess power, sensors can boost how much electricity moves across wires, and software can aggregate distributed energy sources in homes and buildings and make them work together like power plants. Utilities, energy companies, and grid operators need to shift their focus from maximizing energy output to prioritizing improvements that will lower prices and increase reliability for consumers. In the face of rising prices and mounting macroeconomic stress, policymakers and energy players need to meet the political moment by adopting simple, straightforward reforms to utilities and energy markets that will benefit both individual consumers and the broader economy.

FEELING THE HEAT

For decades, the United States enjoyed a relative energy advantage. Electricity prices for industrial users ran at roughly half those for European competitors, and American households and businesses benefited from the United States’ vast energy resources.

The massive spike in demand for electricity, however, is rapidly driving up energy prices across the United States. Retail electricity prices in 2025 have increased at nearly twice the rate of overall inflation. In the first half of the year, utilities requested or received approval for a record $29 billion in rate increases, which means consumers will face higher electricity bills in the coming years. PJM, the regional grid operator serving customers from Michigan to Virginia, announced that the 67 million Americans in its region would see their electricity bills rise by up to 20 to 30 percent next year. Consumers are already feeling the pain: in an April survey run by PowerLines, a consumer education nonprofit, two out of three Americans indicated that utility bills are a source of financial stress.

As prices are increasing, reliability is faltering. U.S. power markets are failing to hold enough spare power to prevent blackouts when demand surges, such as on very hot or cold days. This year, nine out of 13 power markets in the United States are expected to fall below a critical reliability threshold, which marks the level at which the supply of spare power is considered sufficient to avoid outages.

This combination of higher prices and lower reliability poses a direct threat to U.S. national security and economic competitiveness. The global economy is entering an era in which a few new or rapidly growing high-tech industries, including AI, innovative energy technologies, and cutting-edge semiconductors, will drive economic growth. Leading the world in these sectors requires an electric system that can power them. China, the main U.S. competitor in many of these fields, has poured money into electricity generation as part of a long-term plan to power more of its economy with electricity.

The good news is that the United States added nearly 50 gigawatts of new power capacity in 2024, the highest amount in more than two decades. But even at this record pace, supply from new power generation alone cannot keep up with rising demand because of supply chain constraints and regulatory bottlenecks. New natural gas plants are being delayed until the 2030s because of a 50-month backlog for natural gas turbines, and new nuclear power plants can take more than a decade to get off the ground. Renewables are cheaper and faster to deploy, but securing the permits for large-scale facilities and transmission can take years. And the interconnection queue—the waiting line for power sources to get approval to connect to the grid—has swelled to 2,600 gigawatts, or twice the size of the current grid. Washington’s recent tax and spending law, the so-called One Big Beautiful Bill, also raises costs by curtailing federal incentives for new sources of renewable power.

FROM QUANTITY TO QUALITY

The United States can meet staggering demand, however, without technological moonshots, long time horizons, or hefty price tags. This is because even modest improvements in the use of the existing energy infrastructure can yield huge gains. A five percentage point boost in the use of the country’s existing electric infrastructure would unlock the electric equivalent of roughly 60 new natural gas power plants.

Although increasing the efficiency of the existing infrastructure may seem obvious, it is the opposite of how the system has been designed up to this point. In the twentieth century, with limited energy generation technologies and few ways to easily improve efficiency, the goal was to build as many new power plants as possible. Policymakers rewarded utilities, which have a regional monopoly over electricity and whose profits are determined by regulators, on the basis of how much new capital they deployed rather than how well the system performed. Over the past two decades, energy developers have also largely adopted an install-and-forget approach: maximizing upfront capital investments while ignoring the expense of ongoing servicing and maintenance.

The result is a system that is both underused and underperforming. Data from the Federal Reserve indicate that the percent of electricity generation resources in use on average has declined by 10 percentage points over the last decade. Performance has deteriorated as well: outages increased by 60 percent from 2013 to 2023.

DON’T MESS WITH TEXAS

The electric system is underperforming because utilities and energy companies don’t get rewarded for making the existing system operate more efficiently or adopting new technologies that could render outdated systems obsolete. Instead, utilities are paid to figure out how to profit from building a new power plant, not how to adopt the cheapest, most efficient solution. But when policymakers change incentives and remove regulatory barriers for utilities and energy companies to adopt better technology, electric systems work better. Texas is an example of how to get this right.

Since 2021, electricity demand in Texas has grown nearly 20 percent because of record population growth, an influx of energy-intensive manufacturing, and the construction of new data centers. Peak energy demand in the state could double by the end of the decade.

Yet despite this growth, Texas is not facing an energy crisis. Electricity prices are falling, and grid reliability is increasing. Texas has chosen “all of the above” when it comes to strategies to boost electric capacity. This includes connecting new power plants to the grid quickly; installing batteries to store more of the resulting cheap, clean electricity and then releasing it to the grid when demand spikes; and requiring new large-scale electricity users to operate flexibly when connecting to the grid so that the system takes full advantage of its existing capacity without stretching beyond its breaking point. Texas is projected to have the lowest wholesale electricity prices of any market in the country in 2025, and the state has had no blackouts so far this summer.

In Texas, electricity prices are falling and grid reliability is increasing.

Unlike other operators that force new power generators to wait years before they can plug into the grid, Texas’s grid operator, the Electric Reliability Council of Texas, uses a “connect and manage” model that connects new plants to the grid and then handles congestion by managing their operations in real time. As a result, Texas integrates new power sources into the grid more quickly than any other region in the United States. ERCOT processes the interconnection requests for new power to connect to the existing grid at nearly twice the speed of some of its peers. Between 2021 and 2023, the state added at least 70 percent more capacity than any other market, almost all of it cheap, clean energy. Since 2021, Texas has added nearly 40 gigawatts of new clean power generation, enough to comfortably power all of New York state.

Texas is also the fastest-growing market for energy storage: last year, the state deployed more new battery capacity than California—enough to power around three million homes. Texas now has more than 12 gigawatts of battery capacity, which can soak up the glut of cheap solar and wind energy produced during the day and discharge it to consumers when the sun sets.

Texas has realized that using electricity at different times can be as efficient as adding new power. In addition to expanding its battery capacity, earlier this year the Texas state legislature passed a bipartisan law, Senate Bill 6, that allows Texas’s grid operator to encourage data centers and other large energy consumers to shift their power use in moments of extreme demand—or, if necessary, to order them to do so. This program could free up to 15 gigawatts of capacity, equivalent to nearly the total demand of Houston. At a national level, estimates have shown that if power-hungry consumers such as data centers shift when they consume energy just a quarter of one percent of the time, it could increase the United States’ effective production capacity by ten percent without building new infrastructure.

WORKING FROM HOMES

In addition to the strategies being deployed in Texas, another way to add capacity is to unlock the energy systems that already sit in homes and businesses across the country. Millions of generators, solar panels, batteries, and heating and cooling systems in homes and businesses produce, store, or consume energy. When utilities connect these systems to one another and operate them in concert, they can act like a power plant built from technology rather than steel and concrete.

The idea of a distributed power plant is not new. Starting in the 1970s, when the United States faced a wave of energy crises, utilities in states such as New Hampshire used phone calls and physical switches to coordinate thousands of water heaters to manage electricity demand. Today, basic communications technology such as WiFi and Bluetooth make connecting these assets even easier. Integrating them into the grid is far faster and cheaper than building a new physical power plant because these systems are already in place and paid for.

Studies have shown that a basic distributed power plant can deliver electricity 40 percent more cheaply than a conventional natural gas plant. In New York, the energy company ConEdison’s $200 million investment to tap into distributed energy sources allowed it to bypass $1.2 billion in physical infrastructure upgrades. These savings protect consumers from rate increases by avoiding the need for physical improvements to local poles, wires, and substations, which have been the single largest contributor to higher electricity rates in the United States in the last decade. Projections by the U.S. Department of Energy have shown that scaling distributed power plants could meet 100 percent of the projected growth in national electricity demand by 2030.

LOST IN TRANSPORTATION

Meeting rising electricity demand will require expanding the transmission and distribution infrastructure that moves electricity from where it is generated to where consumers want to use it. But construction of transmission is stagnating: the construction of high-voltage transmission lines has fallen from an average of 1,700 miles built per year between 2010 and 2014 to only 55 miles built in 2023. The resulting grid congestion raised consumers’ electricity bills in the United States by $11.5 billion in 2023.

Beyond building more transmission lines, increasing the transmission capacity of existing infrastructure with new and proven technologies can save billions of dollars in electricity costs each year. Advanced conductors allow wires to carry twice as much electricity as in the past. Sensors and software installed in wires can adjust electricity flows, which can add 20 percent or more additional capacity by enabling wires to safely carry more electricity when weather conditions allow. These upgrades do not require the same permitting process as new construction, meaning they can be deployed in months, not years, at a fraction of the cost.

Advanced transmission technologies have existed for decades and have been widely adopted in countries around the world. Real-world trials show they can be successful in the United States, too. One recent deployment of grid sensors in Indiana and Ohio took only nine months to install, increased capacity by more than 50 percent, and cost just one percent of the price of building new transmission lines. Other states are also beginning to see the potential of these new technologies. In Montana, for instance, the state legislature unanimously passed a law to incentivize utilities to install advanced conductors.

MOVE FAST AND BREAK THINGS

The looming energy crisis requires federal, regional, and state policymakers to embrace reforms that put consumers first and let efficient solutions win. In Washington, the agency tasked with overseeing the United States’ electric system, the Federal Energy Regulatory Commission, has for years asked utilities and grid operators to consider reforms to boost efficiency and upgrade their technology. When utilities and grid operators push back, FERC generally relents. In January, for instance, FERC granted a grid operator’s request to delay until 2030 rules requiring it to allow distributed energy systems to participate in electricity markets.

Today’s electricity supply crunch offers a perfect moment to break the cycle. FERC should use its rule-making power to make interconnection reforms mandatory, provide clear timelines for upgrades, and levy harsh penalties for underperformance to ensure that capacity grows everywhere as quickly as it has in Texas. It should require reforms put storage and distributed energy systems on a level playing field with physical power plants to determine which sources produce power at the lowest cost. FERC should also aggressively encourage grid planners to upgrade wires and transmission technology. Policymakers and utilities alike have stalled for too long and claimed reforms are too hard, but in the face of skyrocketing demand such excuses ring hollow.

Despite the Trump administration’s rhetoric about efficiency, it is unfortunately pursuing a regulatory approach that increases uncertainty and reduces investment. Reforming the electric system, however, is precisely where the executive branch should embrace the impulse to break through the bureaucratic hurdles holding back reform.

Reforms should put consumers first and let efficient solutions win.

State policymakers also have an important role to play because state public utility commissions set many of the policies that govern utilities. For decades, the public has not paid attention to these institutions; this has empowered some utilities and their lobbyists to stymie attempts at reform. Facing rising prices, both state policymakers and citizens can no longer ignore these institutions. Public utility commissions—and the legislatures that oversee them—should pay utilities for better performance and hold them accountable for rising electricity prices.

In New Jersey, where electricity rates for households have increased by up to 20 percent this year, both Democratic and Republican candidates in the governor’s race have centered their campaigns on rising energy costs. Governors in other mid-Atlantic states, in which prices are rising because of constraints on new sources of power generation, are calling for interconnection reforms similar to those in Texas that allow projects to connect to the grid quickly. And just this month, Mike Braun, the governor of Indiana, appointed a new Utility Consumer Counselor, which represents consumer interests against investor-owned utilities, and directed her to evaluate utilities’ profits to lower rates in the state.

These reforms will help Americans as workers and consumers. Squeezing more value out of existing energy systems requires investing in the skilled tradespeople who can improve them. Upgrading energy infrastructure is labor-intensive, technical work that relies on electricians, line workers, HVAC technicians, and power engineers, not software alone. Solar and wind technicians are now the two fastest-growing occupations in the entire economy, projected to grow by about 50 percent over the next decade. And research has shown that skilled field trades like those that service the electric system stand to be augmented, not replaced, by artificial intelligence tools such as predictive maintenance and remote diagnostics.

In politics, solutions are never cheap or easy. But when it comes to energy, a set of solutions are at hand that can deliver cheaper and more reliable power right now. If policymakers, utilities, and energy companies optimize the resources available and focus on getting more from the existing system, they can lower electricity bills for consumers and prepare the country to be at the forefront of the next wave of innovation. With the right incentives, the United States can turn an energy crunch into a competitive advantage.

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