(Reuters) -U.S. nuclear power generation is set to rise, analysts at Wood Mackenzie said, as surging demand driven by data centers strains grids across the country and a wave of tech companies sign deals to source power from the zero-carbon resource.

A flurry of announcements in nuclear energy investments - most recently an $80 billion U.S. government partnership with the owners of Westinghouse Electric - underscore the rising interest in the sector. The power industry is grappling with increasing electricity demand from energy-intensive data centers, rising temperatures and electrification. 

"Technology companies are now becoming energy providers by necessity to meet this growing demand, especially in the U.S. where nuclear power is emerging as a preferred solution," said Lindsey Entwistle, principal research analyst at Wood Mackenzie.

NextEra Energy ( NEE/PU ) reached a partnership deal this week with Google to restart an Iowa nuclear plant, while other tech giants like Microsoft ( MSFT ) have also signed deals for next-generation nuclear technologies.

But many of these will take time to complete construction, Entwistle said. Wood Mackenzie expects U.S. nuclear generation will remain steady until 2035, and then increase 27% through 2060. 

Globally, data center power demand is expected to hit 700 TWh in 2025, rising to 3,500 TWh by 2050 - equal to the current combined electricity demand from India and the Middle East - according to the firm's latest energy transition outlook. Global nuclear capacity is expected to grow from 400 GW currently to between 800 GW and 1,600 GW by 2060.

Small modular reactors in particular are viewed as cheaper, quicker to build, and can be co-located with data centers, removing the need for additional power infrastructure, said James West, managing director at Melius Research. 

However, the nuclear industry will face multiple challenges to stay competitive, including project and permitting delays, cost overruns and labor shortage.

For newer technologies like small modular reactors, ensuring policy support and funding for first-of-a-kind projects will also be a challenge, said Entwistle.