by Louis Navellier
March 19, 2024
Last Friday, The New York Times published an excellent article entitled “A New Surge in Power Use Is Threatening U.S. Climate Goals.” This article blamed cloud computing centers and electric vehicles for a new wave of surging demand for electricity. I’ve long argued that the easiest way to meet rising demand for electricity is with natural gas peak-power plants that come online during peak demand. Since natural gas burns much cleaner than coal, there is nothing to stop the expansion of natural gas peak-power plants, since green energy is not as reliable. Furthermore, since natural gas is much cheaper in America than in other countries that rely on LNG, the U.S. is at a massive competitive advantage to other countries that face much higher electricity rates. Finally, since the U.S. electric grid is limited, natural gas peak-power plants can be set up quickly to help meet local electricity demand and prevent blackouts.
The way I see it, the U.S. power grid faces three problems. First, when transmission lines fall over from wind or storms, they can create fires, which happened to PG&E in Napa, to Hawaiian Electric Industries in Maui, and to Xcel Energy in Texas. Second, power grids can undergo voltage swings that can exacerbate fires. For example, Hawaiian Electric Industries detected 122 grid faults between midnight and the morning before the Maui fires commenced. Third, the U.S. power grid is now struggling to cope with peak load demand, especially in areas where cloud computing centers are taking an increasingly large amount of electricity when using AI and the faster servers that Super Micro Computer supplies.
For example, in Reno, where I have a home in the hills above town, there are large generators placed every mile or so in my neighborhood for meeting peak electricity demand in summer months, since Reno does not produce enough electricity for peak-load demand for air-conditioning in the summer months, due to an explosion in cloud computing facilities, as well as an influx of new residents from California.
I am not sure why NV Energy has not installed new natural gas peak-power plants, which would be an easy solution. Instead, NV Energy is striving to generate 50% of its electricity from renewable energy. (It currently generates 35.8% of its electricity from largely geothermal and solar facilities). Since renewable facilities are not as reliable as natural gas, NV Energy is apparently relying on these generators randomly placed in our suburban neighborhoods for peak load demand.
Another problem with the electric grid in America is that we have very few direct current (DC) grids to transmit electricity over long distances. Most of the transmission lines in the U.S. are alternating current (AC), which lose electricity (indicated by the “crackling” noise in the lines) the farther it is transported. As a result, when electricity is transported over a long distance, a DC grid is necessary, which California and New York use for hydroelectric transmission from the Pacific Northwest and Canada, respectively.
If the U.S. were serious about green energy solutions, the best solution would be to construct a DC grid from the desert Southwest – where solar energy can be generated more efficiently – to transmit power over vast distances to Southern California, Salt Lake City and other large Western metropolitan areas.
As electricity demand rises from AI fueling cloud computing and the demand from more electric vehicles, the U.S. power grid is now at the mercy of your local utilities. In Florida, FPL does not want homeowners to install their own solar panels. Instead, FPL wants you to select solar energy and then let the state build more solar farms to meet your energy needs. But the longer the transmission, the more the risks. The state needs to bury the power lines – to reduce fire risk – or install more DC grids.
That’s my solution to the electrical demand crisis. I’ll leave it up to the politicians to make it happen.
In other energy news, the American Petroleum Institute (API) announced on Tuesday that U.S. crude oil inventories declined by 5.5 million barrels in the latest week. API also reported that gasoline inventories declined by 3.8 million-barrels, and distillate (e.g., diesel, heating oil & jet fuel) inventories declined by 1.2 million-barrels. The Energy Information Administration (EIA) reported on Wednesday that U.S. crude oil inventories declined by 1.5 million barrels in the latest week, the first weekly decline in the past seven weeks. Although prices at the pump are rising, this is the normal seasonal surge that happens every spring.
Europe faces much larger energy challenges and higher prices, generating a rolling recession there. Industrial production in the European Union (EU) declined by 3.2% in January, which is raising fears of a recession spreading to many more EU nations. Capital goods output plunged 14.5%, raising deflation fears as demand drops. Ireland had its biggest drop in output with a whopping 29% plunge as EU policies threaten the country’s massive dairy industry with a mandate to kill 600,000 dairy cows to cut carbon dioxide emissions. Farm protests against the EU’s green agenda are clearly hurting the EU’s GDP growth.
U.S. Inflation Rates Ratchet Back Up, Foiling the Fed’s Rate Cut Plans
Inflation started rising again in early 2024. Last Tuesday, the Labor Department announced that the Consumer Price Index (CPI) rose 0.4% in February and +3.2% in the past 12 months. The core CPI, excluding food and energy, rose 0.4% in February and 3.8% in the past 12 months. The main culprit is energy prices, which rose 2.3% in February (with gasoline prices rising a whopping 3.6%). The only good news is that owners’ equivalent rent (shelter costs) rose at a slower pace, +0.4% in February, down from +0.6% in January, but gasoline and shelter costs still accounted for 60% of the February CPI increase.
Then, on Thursday, the Labor Department announced that the Producer Price Index (PPI) rose by 0.6% in February and 1.6% in the past 12 months. The core PPI, excluding food, energy, and trade margins, rose 0.4% in February and 2.8% in the past 12 months. Wholesale food and energy prices rose 1% and 4.4%, respectively. Most shockingly, wholesale goods prices surged 1.2% last month after declining in the past four months. This was a disastrous report, so the Fed will likely not cut interest rates until June or later.
Another dismal report came from the Commerce Department on Thursday, when they announced that retail sales rose just 0.6% in February. Excluding transportation, retail sales rose 0.3%. Furthermore, the January decline was revised to a 1.1% decline (down from the 0.8% decline, initially reported), yielding a net decline in the first two months of 2024. The strongest categories in February were vehicles (up 1.6%) and electronics & appliances (up 1.5%). Gas station sales rose 0.9%, but only due to higher prices at the pump. Overall, this retail sales report is indicative of lackluster growth. In the wake of this report, the Atlanta Fed lowered its first-quarter GDP estimate to a 2.3% pace, down from 2.5% previously estimated.
Spending on the Ukraine war is still controversial, as Ukraine is bracing for a Russia spring offensive, so big backhoes are digging deep trenches to slow any Russian advance. French President Macron is forcing NATO to consider placing troops in Ukraine to stop any Russian advance. The Polish Foreign Minister, Ralph Sikorski, said placing NATO forces was “not unthinkable” and added, “In my opinion, it has a good intention, that is, for the president of Russia to wonder what our next move will be.” Spain and Slovakia are not in favor of using NATO troops, and Germany is also reluctant. Britain has traditionally been the most hawkish on Ukraine, but President Macron is now the new NATO hawk, and the French legislature is supposed to debate a proposed 10-year defense and security pact between France and Ukraine.
As if we don’t have enough war zones to worry about, the anarchy in Haiti caused Prime Minister Ariel Henry to resign last week as roaming gangs continue to create chaos. Henry left Haiti on February 25th and has not been able to return after gangs attacked government facilities and closed the main airport. The gangs freed approximately 5,000 inmates from a prison, so chaos prevails. The U.S. sent in Marines to evacuate key personnel from the U.S. embassy. The U.S. has provided $5.5 billion in aid to Haiti since 2010, but Secretary of State Anthony Blinken said the U.S. will not intervene in Haiti, at least not yet…
Navellier & Associates owns Super Micro Computer, Inc. (SMCI), in managed accounts. We do not own PG&E, Hawaiian Electric Industries, Xcel Energy, NV Power, or Florida Power & Light. Louis Navellier and his family own Super Micro Computer, Inc. (SMCI), via a Navellier managed account, he does not personally own PG&E, Hawaiian Electric Industries, Xcel Energy, NV Power, or Florida Power & Light.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Common-Sense Electrical Energy Solution (Everyone Ignores)
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March Madness: Dow 5k Fears (2009) & Bloated Budgets Begin (1964)
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The Rotation into the Broad Market Accelerates
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The Easy Road (After Hard Study) to Riches
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