California’s Energy Squeeze: A Crisis Reboot With Less Resilience

In 2026, California appears to be entering a familiar chapter in its energy history—one that echoes past crises but unfolds under far more complex conditions. Two decades ago, the state learned the cost of operating an energy system with insufficient buffers. That episode featured rolling blackouts, political outrage, emergency infrastructure buildouts, and a clearly identifiable villain, Enron. Today’s version is quieter, slower moving, and arguably more fragile—defined not by manipulation, but by structural scarcity created through years of policy decisions colliding with rising demand.

Today’s energy vulnerability stems from capacity being removed faster than demand is changing.

The most visible sign of this new energy squeeze is the contraction of in-state fuel production. California currently operates approximately 10 transportation-fuel refineries, with only 6 to 7 large, complex facilities supplying the majority of gasoline and diesel. Recent and pending closures—most notably involving Phillips 66 and the anticipated shutdown of Valero in Benicia—are expected to remove roughly 17–20% of refining capacity by 2026.

This reduction is occurring in a state that functions largely as an energy island, with unique fuel specifications and limited ability to source replacement supply quickly. Unlike earlier crises driven by market behavior or acute failures, today’s vulnerability stems from capacity being removed faster than demand is changing, leaving little margin for error.

Demand Has Not Disappeared—It Has Shifted and Stacked

Despite frequent claims that refinery closures merely reflect declining fuel use, gasoline consumption remains substantial. In 2024, Californians consumed approximately 13.4 billion gallons of gasoline, or 36–38 million gallons per day, with only modest year-to-year variation. The result is not a market adjusting smoothly to lower demand, but a system tightening structurally.

A high-speed EV charger draws power comparable to an apartment building.

At the same time, California’s energy transition is shifting demand rather than eliminating it. Electrification across transportation, buildings, and industry transfers energy use from liquid fuels to the electrical grid—often concentrating load during evening and overnight hours when renewable generation falls. High-speed EV chargers can draw power comparable to small apartment buildings, while all-electric buildings add permanent base load through heating, cooling, cooking, and ventilation.

Electrification, Renewables, and the Limits of the Current Model

California’s energy transition is shifting demand rather than eliminating it. Electrification across transportation, buildings, and industry transfers energy use from liquid fuels to the electrical grid, increasing reliance on resources that must perform reliably hour by hour, not just on an annual average.

Solar generation has grown rapidly and now contributes a meaningful share of California’s annual electricity production. However, that contribution is concentrated almost entirely during daylight hours. Solar output declines sharply in the late afternoon and falls to zero overnight—precisely when residential energy use, EV charging, and cooling demand remain high. As a result, solar reduces fuel consumption during midday periods but contributes little during evening peaks and nothing during overnight hours, leaving system reliability dependent on dispatchable generation, storage, and imports.

Moreover, solar’s role is often overstated by relying on annual energy percentages rather than real-time availability. Grid reliability is determined by performance during the most constrained hours, not during periods of surplus. Batteries help shift some midday solar into the evening, but their duration remains limited, and they cannot support sustained overnight demand, multi-day heat events, or prolonged transmission disruptions.

Solar installations require significant replacement or refurbishment within a decade to fifteen years.

There are also longer-term durability and cost considerations. Solar installations rely on materials and components with finite lifespans, often requiring significant replacement or refurbishment within a decade to fifteen years. When lifecycle costs, land use, material inputs, and disposal are considered, solar represents a continuous capital expenditure, not a one-time infrastructure solution. This makes it effective as a fuel saver, but insufficient on its own as a foundation for system reliability.

In practical terms, renewables reduce emissions and fuel burn, but they do not replace the need for firm, dispatchable energy. Treating intermittent generation as a substitute for reliable capacity—rather than as a supplement—has the effect of shrinking energy buffers faster than dependable replacements are built.

Always-On Load and the Loss of Flexibility

Beyond EVs and buildings, the grid is absorbing rapidly growing demand from data centers, AI compute, cloud services, and electrified logistics and refrigeration systems. Data centers alone now consume roughly 5,500–6,000 gigawatt-hours per year, about 2.5–3% of statewide electricity demand, and their usage has nearly doubled since 2019. These facilities operate continuously, adding always-on demand equivalent to multiple large power plants.

This matters because electricity, unlike liquid fuels, must be balanced in real time. It cannot be stockpiled and is vulnerable to heat waves, wildfire shutoffs, transmission constraints, and regional shortages. By reducing refinery capacity before grid generation, transmission, and storage are fully built out, California is eroding energy redundancy—the buffer that prevents localized disruptions from cascading into broader failures.

The modern risk is not just rolling blackouts, but compound energy stress: extreme heat that strains the grid, coinciding with wildfire-related shutoffs, while fuel supplies are tight and imports are constrained. In such scenarios, disruptions do not resolve quickly; they ripple through logistics, emergency services, and the broader economy.

What This Means for Prices and the Cost of Doing Business

For businesses, these dynamics translate into higher and more volatile energy costs. Reduced refining capacity places upward pressure on gasoline and diesel prices, increasing transportation and logistics expenses across supply chains. Rising baseline electricity demand, combined with the cost of grid upgrades and reliability measures, keeps power rates elevated—particularly for energy-intensive sectors.

This environment complicates long-term planning, increases operating costs, and reduces California’s competitiveness relative to states with more balanced energy portfolios and greater supply flexibility.

Impact on Underserved Communities

While rising energy costs affect all Californians, the burden falls most heavily on consumers in underserved and working-class communities, where household budgets are already strained and flexibility is limited. In cities such as Compton, higher energy prices translate directly into higher living costs with few practical alternatives.

Public transportation may be limited in coverage or frequency and often does not align with shift work, multi-job schedules, or caregiving responsibilities. For many households, a personal vehicle is a necessity rather than a choice, leaving residents immediately exposed to higher gasoline prices. Electric vehicles, while promoted as an alternative, remain financially out of reach for many due to high upfront costs, limited charging access in rental housing, and higher insurance and repair expenses.

Energy-efficiency upgrades and rooftop solar frequently depend on homeownership, landlord participation, or upfront capital that many households do not have. Electricity costs compound these pressures: energy use for cooling, refrigeration, and cooking is largely unavoidable, particularly during heat events when electricity becomes a health necessity.

As a result, energy price increases behave like a regressive tax, forcing difficult tradeoffs between energy, food, healthcare, and housing, while higher transportation and utility costs ripple through local prices for goods and services.

A Crisis Without a Villain—and With Shared Responsibility

Unlike the crisis of the early 2000s, today’s energy squeeze lacks a single bad actor to absorb blame. Responsibility is diffuse, spread across decades of legislation, regulatory decisions, forecasts, and well-intentioned but rigid policies that reduced flexibility faster than replacements were secured.

History suggests that California often adjusts course only after failures become visible and painful. The risk now is that relief arrives only after costs—economic, social, and reputational—have already been paid.

Closing Perspective

California is not facing a simple energy transition; it is navigating a compressed convergence of shrinking fuel supply and expanding electrical demand. The issue is not the goal of electrification itself, but sequencing, infrastructure readiness, and system resilience.

Without coordinated policy that aligns supply reliability with demand growth, the state risks repeating elements of past energy crises in a new form—one marked less by sudden blackouts and more by persistent scarcity, higher prices, and unequal burdens.

A stable, affordable energy system is not only an environmental objective or a business concern; it is a community resilience imperative.