Electricity drives every aspect of our daily lives.
Whether it’s to keep the lights in our homes on, to heat up water, or to refrigerate our food, electricity provides the foundation for our basic functions.
Without it, we wouldn’t be able to perform simple tasks like making coffee or taking a hot shower.
And up until recently, many people in the United States took electrical power for granted. But power outages due to excessive weather are happening in places like Texas.
That’s because when too much demand is placed on power grids, existing power supplies are stretched too thin. Things start shutting down. We talked about that on Thursday.
We also examined America’s current factory boom and how it plays a part in the increased demand for energy.
Today, we’ll dive deeper into how new factories are creating more strain on the power grid system… and what that means for your money.
Increased Energy Demands
Many areas across the country are building factories at a rate not seen in a generation.
That includes places like the U.S. Mountain West, the Midwest, and parts of the Southeast. Just this April, more than $3.2 billion worth of new manufacturing construction projects were underway in the Mountain and West South-Central regions.
All of these new factories coming online share one thing in common. They need access to reliable energy.
But if the grid gets overwhelmed by new power loads, then energy demand will exceed supply, and power outages can occur.
That’s where “load forecasts” come in…
Power Load Forecasts for New Factories
Regular readers know I spend a lot of time meeting with industry leaders to stay ahead in the market.
And my high-level contact in the energy space is a man I call Mr. Electricity. He has worked for five decades on consumer and industrial energy projects. And according to him, the new factories coming online in the middle of America are all focused on energy and cost.
“We are still seeing much activity in the Midwest,” he told me behind the scenes. “It’s mostly manufacturing projects related to EVs, renewable energy, and hydrogen, [plus] several data center projects. So we do rate analyses to help potential new customers evaluate future operating costs, and they incorporate this data into a larger site location cost analysis.”
He revealed that one of the most pressing topics in the electricity industry is how to accurately forecast something called “loads” for power grids.
The analysis boils down to “load calculations.” These enable factories that rely on a large amount of power to operate more efficiently and save money.
The more accurate the load forecast, the easier it is for factories to compute the real impact their electrical equipment and systems will have.
And the more factories in an area, the more important it is for each one to balance existing supply with its unique demands.
The Race to the Grid
Rapid digitalization, requirements for decarbonization, and electrification have all been on the rise. This has unleashed a “race to the grid” in certain parts of the country.
As a result, factories are competing for power. They must compute their power needs, or load, as efficiently as possible to do that.
If businesses underestimate their load, it can lead to electrical equipment failure, engineering backlogs, and transmission and capacity constraints.
That’s why forecasted electrical loads, including mechanical equipment for operations and production, must be accurate. Too much of an error could impact business margins. It could be the difference between being profitable and going under.
Simply put, big factories can’t just set up shop and plug in. First, they need to figure out how to access the existing grid.
Now, the “race to the grid” can lead to energy companies charging more for electricity. If you take a look at your electricity bills in the summer months, you’ll see this direct relationship.
It’s because you, your neighbor, the Starbucks near you, and the supermarkets are all using more energy to cool their spaces. So imagine how much extra you might have to pay if another large, new factory entered your area.
What You Can Do to Stay Ahead
The manufacturing boom in the heartland shows no signs of letting up. And the energy demands to power it will only increase.
But there’s a silver lining to this story…
Energy companies are benefitting from the increased demand for power. In fact, energy stocks outperformed the broader U.S. stock market in 2022.
To profit from the energy and factory boom, consider investing in the Vanguard Energy Index Fund ETF (or VDE). This fund tracks the performance of the MSCI US Investable Market Energy 25/50 Index, which is a multi-cap collection of energy companies powering America’s reindustrialization.
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins
P.S. While investing in an exchange-traded fund (ETF) provides broad exposure to the energy trend, individual names offer greater upside.
That’s why I set out to meet with both political contacts and industry leaders. And after many conversations, I discovered one of the biggest opportunities of 2023.
It’s a tiny, $2 firm that has just been granted a virtual monopoly over an entire $1 trillion energy subsector.
For more details, make sure you watch this video presentation I put together.