Article
6 min
US utilities: driving energy transition
Data centers serve as the backbone of our increasingly digital world, supporting cloud computing services, e-commerce and artificial intelligence. However, they are significant consumers of energy, requiring vast amounts of electricity to power and cool their servers. According to the International Energy Agency (IEA), global power demand from data centers could exceed 1,000 terrawatts per hour (TWhs) by 2026 – roughly equivalent to Japan's entire electricity consumption.* The growing demand for new data centers raises questions about electricity sourcing, necessary infrastructure and implications for decarbonisation efforts.
From an Environmental, Social, and Governance (ESG) perspective, meeting the rising electricity demand and promoting widespread electrification are essential for decarbonisation. To achieve net-zero emissions by mid-century, electricity demand must increase by 150% to accommodate the electrification of transportation, residential sectors, and societal digitalisation.**
The US market is home to about a third of the world's data centers and is well positioned to leverage these megatrends. Major tech companies like Amazon, Apple, Alphabet, Meta and Microsoft – known as 'hyperscalers' – rely heavily on data centers. Despite their substantial energy demand, these companies have committed to being 100% renewable or zero carbon, collectively accounting for over 45 GW of corporate renewable purchases worldwide.***
Data center numbers by country (Top 10)
Source: Statistica, as at 2024.
Our current allocation of 37% to US electric and multi-utilities within the Global Listed Infrastructure strategy is driven by a combination of compelling valuations coupled with emerging opportunities around data center growth, digitalisation and decarbonisation.^ We believe these underappreciated structural growth tailwinds will persist for decades to come but are not yet reflected in the market prices for these assets.
Achieving the energy trilemma of decarbonisation, reliability and affordability while meeting data center power infrastructure needs requires co-ordinated efforts. This includes grid investment, timely delivery of renewable energy projects, zero-carbon baseload from nuclear energy and enhanced energy efficiency measures.
Utilities must assure regulators that additional load growth from data centers won't burden residential customers with higher bills. Beyond rate increases, US utilities may explore alternative funding sources for their capital programs, such as tax credits under policies like the Inflation Reduction Act. Over time, electricity bills could decrease as renewables' share of the generation mix grows and technology costs decline further.
The inevitable increase in electricity demand due to digitalisation is a precursor to achieving net zero emissions. Striking a balance between growing demand and emissions mitigation is challenging, but US regulated utilities are well-positioned as power becomes more valuable, sought after and decarbonised.
* IEA, ’Data Centers and Transmission Networks’, July 2023; IEA, ‘Electricity 2024’.
** IEA, ‘World Energy Outlook 2023’. Net Zero Emissions by 2050.
*** "Datacenter companies continue renewable buying spree, surpassing 40 GW in US", S&P Global Market Intelligence, March 28, 2023.
^ A representative fund of the Global Listed Infrastructure strategy has been used as a proxy. As at 31 March 2024.
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