Trump 2.0 - Energy and International

[Trump 2.0 - Energy and International Relations 8]
- AI U.S.-China competition and renewable energy infrastructure

(I'm going to organize last month's lecture and post it as a series. Please refer to it.)

3 lines summary
1. Increasing demand for power from AI reveals weaknesses in U.S. power grid, and super-wide power grid construction is expected in the future

2. The use of Chinese materials is inevitable for the development and electrification of renewable energy in the United States, but the United States will implement a policy of job growth and security priority

3. China's overproduction and deflationary exports could cut electrification and energy conversion costs, but they raise political tensions, so a cautious response is needed

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The LLM craze, which began in 2023, is leading to the establishment of AI infrastructure across the United States. In the case of the Colossus AI center established by Musk's xAI, the amount of power required by one location to collect 100,000 Nvidia GPUs and use them for AI model training and service is 70-200 MW. This is equivalent to the amount of power in a city with a population of 50,000, and these AI data centers are rapidly being created throughout the United States.

OpenAI, MS, Google, and Amazon are creating AI data center parks that collect individual AI data centers, and one park uses 500-1,000MW of power and needs to build a large power plant to supply enough electricity. AI data centers are easy to connect to high-speed Internet networks, have a lot of professional service personnel, and gather in places with good power conditions, mainly in northern Virginia and Arizona.

In the PJM power market, which includes northern Virginia, power demand has not increased by 0.5% per year over the past 10 years, and the infrastructure is aging for more than 40 years, and power demand has begun to surge as data centers flock. Electricity demand is expected to increase by more than 4% per year, reflecting all the demands of large IT companies to build AI infrastructure. Considering the power supply request received by Dominion, a large power company belonging to PJM, the current demand of 25GW is expected to increase to 40GW by 2038. These AI infrastructures require the establishment of high-quality electric and dual power supply chains, and there is also a demand for RE100 in the long run.

For PJM as a whole, demand at the current 90GW level is expected to double to 180GW by 2038, and most of these increases are in commercial/AI data center demand. The problem is the lack of power grids to meet demand. Due to the lack of power grids, competition for use in the limited power grid is occurring, and the price of power transportation rights is soaring. Over the past four years, prices have risen a lot in the United States, and the cost of power plant EPCs has soared by more than 40%. As a result, PJM's expected power generation cost is increasing significantly by more than 10% every year.

Due to the lack of systems, it is difficult to connect to PJM even if large-scale renewable energy power plants are built in the southeastern or central U.S. and PPA is signed cheaply, and various costs are incurred. Power plant investors are engaged in a gut business because they know AI data centers will buy even expensive electricity, and they are offering very high power generation costs due to the increased cost of thermal power plant EPC. The Trump administration considers the establishment of AI infrastructure as the core of the U.S.-China hegemony competition, and the difference between China, which has the fastest speed of building power grids in the world, and the U.S., which entrusts the private sector to build power grids, is noticeable.

A natural gas power plant that can be built quickly near the demand area is an alternative right now, but few companies are willing to invest in power plants that are vulnerable to fluctuations in fuel costs and have difficulty controlling EPC cost hikes. The Trump administration is trying to restart coal power plants for AI infrastructure if necessary by minimizing environmental regulations, but it is cautious because it does not know which regime will tighten after Trump because power plants must operate for more than 30 years. Since the cost of power generation of wind power in the central United States and solar power in the southeast or the unit price of PPA is less than 5 cents/kwh, a long-term fixed contract is possible for 20 years, so an ultra-wide power grid that draws abundant renewable energy from these regions to the east, west, and metropolitan areas is needed.

Investment in AI infrastructure has exceeded $150 billion over the past two years, but investment in the electrical grid is poor. It is expected that three long-distance HVDC super-wide area systems connecting the east and west of the United States and 15 lines of wide-area systems connected to them should be established in the long run. Texas is also a region with abundant wind and solar power resources and relatively easy grid construction, so it is highly likely to attract manufacturing and build AI infrastructure.

The super-wide power grid, which connects the U.S. east and west and connects 15 metropolitan areas, is an inter-state project, so federal intervention and law revision are essential. Although the Trump administration is not interested in the project, FERC started related work late last year. Although Trump ostensibly advocates nuclear power plants and natural gas power plants, he does not deny the need for an ultra-wide power grid in terms of long-term U.S.-China competition. In the end, environmental regulations, complex licensing, and bureaucracy need to be overcome, and attention is being paid to whether the Trump administration's reform of the government body will be effective.

Overcoming the high dependence on Chinese materials is one of the remaining challenges in building renewable energy infrastructure in the United States. China has dominated the supply chain for most renewable energy-related materials, including solar panels, batteries, ESS, heavy electricity facilities, wind generators, and water electrolysis equipment. It is inexpensive, but it boasts an overwhelming advantage in all aspects, including quality, performance, durability, delivery date, specifications, and performance. Since China accounts for more than half of the world's renewable energy installation, it is only natural.

The United States has no intention of building American infrastructure by importing Chinese materials as they are. The IRA also gave preferential treatment and subsidies to American products, and localization provisions were strict. Trump will tighten tariffs on Chinese materials, encouraging and inducing production in the United States, even if it is expensive. The Trump administration, which judges that job creation and the ability to adequately self-sufficiency in manufacturing industries are essential to security, will pressure allies such as Korea and Germany to build factories in the United States and produce a variety of products that can replace Chinese products.

Chinese