The demand for power from data centers is expected to triple by the year 2030, largely driven by the rapid scaling up of artificial intelligence technology. According to a report by Mizuho Securities, the demand will reach a staggering 400 terawatt hours, representing about 9% of total electricity demand in the U.S. by the end of the decade. This growth is propelled by the increasing use of AI in various sectors, leading to an explosion in renewable energy and natural gas consumption.
Renewable energy sources are expected to experience significant growth to meet the escalating power demands of data centers. The technology sector’s commitment to climate goals will drive this growth, with solar demand projected to increase by 7 gigawatts annually and wind by 5 gigawatts per year through 2030. Solar tracker companies like Nextracker and Array are positioned to benefit the most, given their ability to quickly ramp up production capacity through steel contract manufacturers. This growth in renewable energy represents a substantial upside for solar and wind sectors compared to current forecasts.
While renewables are on the rise, natural gas is expected to play a crucial backup role in filling the gap when solar and wind power drop due to weather conditions. Mizuho forecasts an increase in natural gas demand by up to 4 billion cubic feet per day by 2030, with the potential for further growth if renewable expansion is slower than expected. Gas producers like EQT Corp. and pipeline operators Williams Companies and Kinder Morgan are likely to benefit from this increased demand, especially in key data center markets.
Despite the promising outlook for power demand from data centers, the industry faces several challenges. Mizuho analysts caution that new power projects can take up to five years to get permitted and connected to the grid, leading to potential delays in meeting the growing demand. Additionally, uncertainties surrounding government incentives, such as those under the Inflation Reduction Act (IRA), and import tariffs could hinder investments in renewable energy projects. The outcome of the November presidential election will also have implications for the industry, particularly for companies like First Solar.
The future of data centers is promising yet challenging. The exponential growth in AI technology will drive a significant increase in power demand, requiring a shift towards renewable energy sources and a reliance on natural gas as a backup. While opportunities for growth abound in the industry, potential bottlenecks and uncertainties in government policies pose risks that must be navigated carefully. Data center operators, renewable energy companies, and gas producers must adapt and innovate to meet the evolving landscape of power demand in the coming decade.
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