U.S. electric utilities brace for surge in data centres’ power needs
U.S. electric utilities predict a tidal wave of new demand from data centres powering technology like generative AI, with some power firms projecting electricity sales growth several times higher than estimates just months earlier.
Nine of the top 10 U.S. electric utilities said data centres were the main source of customer growth, leading many to revise upwards capitalexpenditure plans and demand forecasts, according to a Reuters analysis of company earnings reports from the first three months of the year.
During the same earnings period last year, only two of the companies mentioned data centres. “The growth is going to kick in faster than it has in decades,” said Jim Lydotes, head of equity income for Newton Investment Management, a BNY Mellon IM firm that is shifting its holdings in European electric utilities to U.S. companies.
In 2023, the country’s electric utility shares fell by more than 10%, the largest yearly drop since 2008, as rising inflation pushed investors to chase higher yields. The firms, which suffered prolonged demand lull after the introduction of new energy efficiencies at the start of the millennium, are up about 4% so far this year.
Overall, power use from the thousands of giant computing warehouses that comprise data centres is expected to triple globally from less than 15 terawatthours (TWh) in 2023 to 46 TWh this year, as per Morgan Stanley research.
“The truth of the matter is these things (data centres) are pigs when it comes to energy use, and now they’re the size of an elephant,” said Eric Woodell, an expert who specialises in data centre operations.
Longer term power demand from IT equipment in U.S. data centrse is expected to reach more than 50 gigawatts (GW) by 2030, up from 21 GW in 2023, according to consulting firm McKinsey’s latest estimates. Last year, it had forecast demand rising to over 35 GW by 2030.
Surging electricity demand from data centres, along with an increase in U.S. manufacturing and the electrification of sectors like transportation, was evident in the most recent round of utility earnings calls with investors.
Southern Co. expects data centres to propel its electricity sales growth to 6% each year from 2025 to 2028, up from predicted growth of 1% to 2% annually through next year.
Sales from its Georgia Power business unit are seen jumping to an unprecedented 9% a year.
Floridabased NextEra Energy, the world’s largest renewable energy company, said it had data centres in its project queue that would use more than three
GW, or nearly enough to power all homes in the State of Minnesota.
Executives from American Electric Power, based in Ohio, said the company’s retail customer demand grew 2.5% in 2023, much faster than its earlier 0.7% projection, due primarily to the acceleration of data centre power use.
Growing backlog
The rapid growth has raised concerns the U.S. electric utility industry, historically known for slow and steady returns, will be unable to respond quickly to the rise in power demand because of a swelling backlog of power generation and transmission projects to connect to the grid.
“What we’re seeing in the market is these projects are not coming online fast enough to meet the local demand for the for the data centers,” said Rystad energy analyst Geoff Hebertson.
The jump in overall demand has added to a nationwide queue of requests for power generation and energy storage projects to connect to the grid, which swelled to 2,600 gigawatts in 2023 from 2,000 gigawatts in 2022, as per latest data from Lawrence Berkeley National Laboratory.
Scrutiny from some State legislators who have grown concerned about how data centres strain power grids, raise emissions, and sometimes fail to boost State economies, has also emerged as a threat to electricity demand in certain regions.