April 10 (Reuters) - U.S. electric utilities predict a
tidal wave of new demand from data centers 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 U.S. electric utilities said data centers
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 centers.
"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
companies, which suffered a 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 centers 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 centers) are
pigs when it comes to energy use, and now they're the size of an
elephant," said Eric Woodell, an expert who specializes in data
center operations.
Longer term power demand from IT equipment in U.S. 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 centers, 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 centers 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 ( GPJA ) business unit are seen jumping to an
unprecedented 9% a year.
Florida-based NextEra Energy, the world's largest renewable
energy company, said it had of data centers 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 ( AEP ), an electric utility
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 center power use.
GROWING BACKLOG
The rapid growth has raised concerns that 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 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 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, according to the latest data from
Lawrence Berkeley National Laboratory (LBNL).
Scrutiny from some state legislators who have grown
concerned about how data centers 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 centers, 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 center
development," said Raul Martynek, CEO of DataBank, which is
developing 225 megawatts of data center capacity across 14 U.S.
markets, including the Atlanta area.