Sunday, March 30, 2025

The Forecast: The electric grid is in trouble

Plus, a big tariff week.
View in browser
Bloomberg

Welcome back to The Forecast, where we help you think about the future — from next week to next decade.

This week we're looking at the ticking time bomb of aging electrical grids, an unpredictable week ahead for tariffs and Trump's interest in Greenland.

Also, this week we launched Pointed, a weekly news quiz for risk takers. If you like the Forecast, we predict you'll like the quiz.

Heathrow Is a Wake-Up Call for Utilities

The electrical grid is the world's biggest machine, and it's remarkable that it rarely breaks down. When it does, it can have spectacular impacts, as the shutdown of London's Heathrow airport last week clearly showed. One electrical transformer exploded, and the airport went dark.

A preliminary investigation narrowed the explosion's causes to human error or equipment malfunction. But the backdrop to Heathrow's charred transformer is the aging of electrical grids in Western countries. In the US, for example, a government report published last year found that more than 70% of grid equipment is over 25 years old. Electricity demand in these countries has been flat or falling for decades, which has led the industry to delay capital spending on new equipment and push existing equipment to sweat harder and run for longer. 

Now that calculus is changing. Utilities are seeing a rapid rise in electricity demand spurred by electric cars and heat pumps, along with massive buildout of data centers for artificial intelligence. That's on top of extreme weather impacts causing more outages, and flukes like Heathrow highlighting how quickly an equipment failure can become catastrophic. 

Upgrading grids for 21st century demands in one go would require trillions of dollars of investments — a tough sell for utilities that are either state-owned or regulated monopolies with capped profits. That means much of the near-term action will be in retrofitting old equipment with new technologies.

To start, utilities are likely to make small investments in software or minor equipment upgrades, says Conor Murphy, vice president of engineering at grid technology firm Novogrid. They'll also look to new tech: from deploying monitoring equipment that's linked up to real-time data analytics to replacing small portions of the grid, such as cables, with higher electrical capacity.

There is no shortage of solutions, as the growing list of patents filed on grid technologies shows:

Some of these solutions can be retrofitted on existing infrastructure, improving resilience and performance. But the eventual goal is still a complete overhaul, which will depend on whether executives are willing to take chances.

"Utilities are risk averse," says Rena Kuwahata, power-system analyst at the International Energy Agency. "There are a lot of pilot projects that test new concepts. The question is how to integrate them systematically and make a business case."

The growing risk of not upgrading may help force the issue. The transformer that shut down Heathrow was worth a few million dollars; one estimate puts the shutdown's damage to the airline industry at more than $70 million. After hundreds of thousands of passengers were stranded, UK Prime Minister Keir Starmer vowed that it will never happen again. Utilities around the world are listening. 

— Akshat Rathi, Bloomberg Green

Read more: The Device Throttling the World's Electrified Future

Predictions

Tariff inflation is "inevitable" says Federal Reserve Bank of Boston President Susan Collins. That means US interest rates will need to stay steady for longer. — Maria Eloisa Capurro, Bloomberg News

Data centers are a bubble, says Alibaba Chairman Joe Tsai. "Many of those projects are built without clear customers in mind, Tsai told the HSBC Global Investment Summit in Hong Kong Tuesday." — Luz Ding, Bloomberg News

The euro could challenge the dollar's status as a reserve currency. The hurdles are huge but "the door is opening as Trump shakes the foundations of the dollar as the world's global currency" and French president Emmanuel Macron sees opportunity. — William Horobin and Alberto Nardelli, Bloomberg News

The traditional search bar is on its way out. ChatGPT changed search irrevocably, and Google expects voice queries and visual search to increase, too. — Julia Love and Davey Alba, Bloomberg Businessweek

More Americans will cheat on their taxes. Tax evasion is contagious, and with IRS staff getting fired, accountants keep getting asked 'Why should I pay my taxes?' — Wes Kosova, Bloomberg Businessweek

"Vibe coding" won't scale. Turning over large programming tasks to AI is fine for prototypes but it isn't a substitute for engineering. — Parmy Olson, Bloomberg Opinion

Keep an Eye On

What Happens on "Liberation Day"

US President Donald Trump has dubbed Wednesday, April 2 "liberation day" and promised a swath of retaliatory tariffs on US trade partners. It could be the biggest day in US trade policy since the enactment of Smoot-Hawley in 1930. Or… not, if postponements, deals or new policies come in place of large tariffs. 

Two charts from Bloomberg Economics illustrate this dynamic. The first is from economist Maeva Cousin, who attempted to estimate the impact of a "maximal" approach to reciprocal tariffs on the US economy. (Terminal subscribers only.) She looked at the 15 countries with whom the US has the largest trade deficits — and included the impact of regulation and value-added taxes, which Trump has said should count in trade negotiations. 

Cousin concluded that reciprocal tariffs on these partners, accounting for those non-tariff "grievances," would "add up to 28 percentage points to average US tariff rates" and "would create a hit of 4% to US GDP and lift prices by close to 2.5%, a shock we think would play out over a two- to three-year period."

That's the If he goes all the way through with it scenario, but how likely is that? Trump said Wednesday the reciprocal tariffs were going to be "very lenient." And Polymarket's chances of "large tariffs" — 5% weighted average by end of Q2, far below Cousin's estimate — remain at just 60% as of this writing, though that's higher than a month ago.

That brings us to the second chart: Bloomberg's Trade Policy Uncertainty Index {BBUNTPGD }, which tracks mentions of uncertainty in Bloomberg News articles on trade. 

Uncertainty is much higher by this measure than it was during Trump's first term. As Singapore-based fund manager Xin-Yao Ng concluded, "It is a fool's errand to try and predict what Trump will do."

— Walter Frick, Bloomberg Weekend Edition

What Are the Chances...

33%
The chances that the US controls any part of Greenland by Jan. 21, 2029, according to Kalshi. (All forecasts in this email as of 4:15 p.m. ET on Friday.)

Weekend Reads

Once an Economy Switches from Rules to Deals, It's Hard to Go Back
How Greenland's Sled Dogs Entered a Diplomatic Row
The Golden Age of Magazines Was a Time of Budgetless Ambition
Is College Still Worth It Economically?
Is India's Stock Market a Bubble About to Burst?

Week Ahead

Monday: China's March manufacturing PMI provides clues on how its economy is handling tariffs; South Korea lifts its ban on short selling.

Tuesday: Eurozone inflation is expected to decline slightly to 2.2% in March; Florida holds two special elections for the US House of Representatives; the Reserve Bank of Australia is expected to hold interest rates steady. 

Wednesday: Trump's "liberation day" tariffs expected; Canada is set to impose retaliatory tariffs on the US.

Thursday: US auto tariffs slated to take effect; NATO foreign ministers meet.

Friday: US reports March jobs data which is expected to show signs of a cooling labor market.

Have a great Sunday and a productive week.

— Walter Frick and Kira Bindrim, Bloomberg Weekend Edition; Akshat Rathi, Bloomberg Green

More from Bloomberg

Enjoying The Forecast? Check out these newsletters:

Explore all newsletters at Bloomberg.com.

Follow Us

Like getting this newsletter? Subscribe to Bloomberg.com for unlimited access to trusted, data-driven journalism and subscriber-only insights.

Before it's here, it's on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can't find anywhere else. Learn more.

Want to sponsor this newsletter? Get in touch here.

You received this message because you are subscribed to Bloomberg's The Forecast newsletter. If a friend forwarded you this message, sign up here to get it in your inbox.
Unsubscribe
Bloomberg.com
Contact Us
Bloomberg L.P.
731 Lexington Avenue,
New York, NY 10022
Ads Powered By Liveintent Ad Choices

No comments:

Post a Comment

Catalyst Opportunity for "STAI"...

Could a transformative partnership be on the horizon for "STAI"? A major collaboration might be the catalyst that propels the comp...