U.S. Electric Utilities Brace for Surge in Power Demand from Data Centers

By Editor


Electric utilities across the United States are preparing for a significant increase in electricity demand driven by data centers powering advanced technologies like generative AI.

Recent projections from top U.S. electric utilities indicate a surge in demand several times higher than earlier estimates, signaling a substantial shift in the industry landscape, Reuters news report said.

A Reuters analysis of company earnings reports from the first quarter of the year reveals that nine out of the top 10 U.S. electric utilities have identified data centers as a primary source of customer growth. This trend has prompted many utilities to revise their capital expenditure plans and demand forecasts, in anticipation of accelerated growth in electricity consumption.

Jim Lydotes, head of equity income for Newton Investment Management, highlighted the impending surge in growth, stating, “The growth is going to kick in faster than it has in decades.” Lydotes’ firm is shifting its investments from European electric utilities to U.S. companies in response to this anticipated trend.

The electric utility sector experienced a significant downturn in 2023, with utility shares falling by more than 10 percent, marking the largest yearly drop since 2008. However, this year has seen a modest recovery, with utility shares up by approximately 4 percent so far. The resurgence is attributed to rising inflation, prompting investors to seek higher yields.

According to Morgan Stanley research, global power use from data centers is expected to triple from less than 15 terawatt-hours (TWh) in 2023 to 46 TWh this year. This exponential growth has raised concerns about the industry’s ability to meet the escalating demand, particularly given the backlog of power generation and transmission projects awaiting connection to the grid.

Consulting firm McKinsey estimates that by 2030, longer-term power demand from IT equipment in U.S. data centers could exceed 50 gigawatts (GW), up from 21 GW in 2023. This surge in electricity demand is evident in recent utility earnings calls, with companies like Southern Co and NextEra Energy anticipating substantial increases in sales propelled by data centers.

However, the rapid growth in demand has also sparked concerns about the industry’s capacity to respond effectively. Analysts warn that the backlog of power generation projects may hinder the utility sector’s ability to meet the growing demand from data centers.

Moreover, scrutiny from state legislators, who are increasingly concerned about the strain on power grids and environmental implications of data centers, poses additional challenges. The Georgia Senate’s decision to suspend tax breaks for data centers underscores the growing scrutiny faced by the industry.

Despite these challenges, data center developers remain optimistic about growth opportunities. Raul Martynek, CEO of DataBank, expressed confidence in the resilience of the industry, emphasizing the ongoing development of data center capacity across various U.S. markets, including Georgia.

GreentechLead.com News Desk

Latest News