US electric utilities predict a tidal wave of new demand from data centres powering technology like generative AI, with some power companies projecting electricity sales growth several times higher than estimates just months earlier.
Nine of the top 10 US electric utilities said data centres were a main source of customer growth, leading many to revise up capital expenditure 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 US companies.
In 2023, the country’s electric utility shares fell by more than 10 percent, the largest yearly drop since 2008, as rising inflation pushed investors to chase higher yields.
The companies, which suffered a prolonged demand lull after the introduction of new energy efficiencies at the start of the millennium, are up about four percent 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 terawatt-hours (TWh) in 2023 to 46 TWh this year, according to 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 US data centers 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 forecasted demand rising to over 35 GW by 2030.
Surging electricity demand from data centres, along with an increase in US 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 six percent each year from 2025 to 2028, up from predicted growth of one to two percent annually through next year.
Sales from its Georgia Power business unit are seen jumping to an unprecedented nine percent a year.
Florida-based NextEra Energy, the world’s largest renewable energy company, said it had of 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, an electric utility based in Ohio, said the company’s retail customer demand grew 2.5 percent in 2023, much faster than its earlier 0.7 percent projection, due primarily to the acceleration of data centre power use.
Growing backlog
The rapid growth has raised concerns that the US 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 in line to connect to the grid.
“What we’re seeing in the market is that these projects are not coming online fast enough to meet the local demand for the for the data centres,” 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 2600 gigawatts in 2023 from 2000 gigawatts in 2022, according to the latest data from Lawrence Berkeley National Laboratory (LBNL).
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.
The Georgia Senate voted last month to suspend some tax breaks for data centres, saying the businesses failed to create enough jobs to stimulate the state’s economy.
That decision was “unfortunate” but will not be enough to undercut the lure the state has for new data centre development,” said Raul Martynek, CEO of DataBank, which is developing 225 megawatts of data centre capacity across 14 US markets, including the Atlanta area.