A Push for Electrification Affects Market Volatility

Broad electrification is at the center of global decarbonization efforts, but electrification is likely to have consequences for the cost of power.

The U.S. electric grid wasn’t built to support a mass transition to electric vehicles (EVs) and all-electric homes. As policymakers push for further electrification, we’re likely to experience both a massive increase in electric demand and greater volatility in the power market.

Currently, the most significant shift is happening with vehicles. In 2021, EV sales in the U.S. increased to 4.6 percent — and some analysts forecast that EV sales in the U.S. could reach 40 percent of total passenger car sales by 2030.¹ Dozens of the world’s largest manufacturers have committed to increasing their EV offerings, and more than 10 of the world’s largest manufacturers have declared electrification targets. (Notably, GM plans to offer only light-duty electric vehicles by 2035.)

While an exciting decarbonization trend, recent research has acknowledged that, without enhancements to the grid, the growth of electrification may be costly, slower than initially expected, and affect reliability. And, critically, as more energy generation shifts to electric, consumers will need to better understand their electric usage — notably, peak load — and how focusing on energy efficiency can help mitigate rising power costs.

While policymakers are likely conscious of the economic and infrastructure consequences of broad electrification, 2023 may prove to be an integral year in terms of laying out a realistic, cost-effective plan.