Umair Gaines
Electricity companies are facing an unprecedented surge in demand, driven by a combination of factors, including the rapid expansion of data centres, the growing adoption of electric vehicles, and the electrification of various sectors. This surge in electricity demand is expected to have far-reaching consequences for the energy systems of countries around the world, as they strive to ensure a secure, affordable, and sustainable electricity supply. The increase in demand has also been attributed to the growing use of electricity in industrial production, the need for air conditioning, and the expansion of sectors such as transportation and manufacturing. To meet this rising demand, electricity companies are exploring various solutions, including investing in new infrastructure, embracing clean energy sources, and leveraging digital tools and new technologies.
| Characteristics | Values |
|---|---|
| Data centers | Electricity demand is expected to triple by 2030 |
| Manufacturing | The Inflation Reduction Act, passed in 2022, included massive incentives for domestic manufacturing. These processes will require electricity, adding to the current load. |
| Clean energy investments | Driving up demand in some states |
| Population growth | Increased electricity use |
| Economic recovery | Increased electricity use |
| Electrification | Electric vehicle sales are up 8% year over year, now accounting for 9% of new car sales in the first three quarters of 2024 |
| Air conditioning | Increased demand |
| Industrial production | Increased demand |
| Transport sector | Electric vehicle sales are up 8% year over year, now accounting for 9% of new car sales in the first three quarters of 2024 |
| Solar PV | Generation from solar PV is forecast to meet roughly half of global electricity demand growth through 2027 |
| Nuclear power | Electricity generation is on course to hit new highs every year from 2025 onwards |
| AI adoption | Google and Microsoft more than quadrupled their electricity use from 2016 to 2023 |
| Energy-efficient technologies | Widespread adoption has offset some of the increased demand |
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What You'll Learn
Electric vehicle adoption
In 2023, global electric car sales exceeded 14 million, with China accounting for nearly 60% of all new electric car registrations. China's support for EVs has helped drive down battery costs and increase adoption worldwide. The country has provided financial subsidies and tax breaks for both producers and consumers, recognising the potential benefits of EVs in reducing air pollution and oil dependence. In 2022, 22% of passenger vehicles sold in China were all-electric, amounting to 4.4 million sales, higher than the rest of the world combined.
Norway and its Scandinavian neighbours, Iceland and Sweden, are also leaders in EV adoption. In 2022, eight out of ten passenger car sales in Norway were all-electric, with 150,000 sold. The Norwegian government has consistently promoted EVs since 1990, offering incentives and targeting a phase-out of internal combustion engine vehicle sales by 2025.
The private sector, particularly car manufacturers, has responded positively to the market changes. Many automakers have announced plans for partial or full electrification of their fleets. Initiatives like EV100 support the transition to zero-emission transportation, with members committing to installing charging infrastructure for employees and customers by 2030.
To achieve international climate goals and limit global warming to 1.5 degrees Celsius, EVs need to reach 75-95% of passenger vehicle sales by 2030. While this presents a challenge, the recent exponential growth in EV sales indicates that this target is achievable. The average annual growth rate over the past five years was 65%, and the required growth rate over the next eight years is only 31%.
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Data centre expansion
The expansion of data centres is a key driver of the surge in electricity demand. This is due to the increased use of cloud computing, big data processing, and artificial intelligence, which require data centres for storage, management, and information delivery. Data centres have been described as "the modern nerve centres of the digital world".
The electricity demand of data centres is expected to triple by 2030, with some estimates projecting an increase of up to eightfold by 2028. This rapid growth in data centre electricity consumption has already been observed in smaller countries with expanding data centre markets, such as Ireland, where data centre electricity use has more than tripled since 2015.
The increasing demand for data centre energy has significant implications for the electricity grid. Data centres require a continuous and reliable power supply, and their steep increases in load size can impact regional grids. To address this, the U.S. Department of Energy (DOE) has outlined strategies to meet data centre energy demand, including enabling data centre flexibility through onsite power generation and storage solutions, leveraging retired coal facility infrastructure, and engaging with stakeholders on innovative rate structures.
The expansion of data centres also presents an opportunity to accelerate the development of clean energy solutions. Solar energy, wind energy, battery storage, and energy efficiency improvements are all cost-competitive ways to meet the rising electricity demand from data centres. Additionally, the waste heat generated by data centres can be used to heat nearby buildings or supply industrial heat users, reducing energy use from other sources.
Overall, the data centre expansion is a significant contributor to the increasing electricity demand, and addressing this demand through clean energy solutions can help support economic growth and a more sustainable energy future.
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Manufacturing and industrial processes
The manufacturing and industrial sectors are some of the largest consumers of energy, with the industry sector alone consuming 149 million terajoules in 2017. This presents an opportunity for electric companies to increase demand by targeting these sectors.
Electrification of Industrial Processes
Electric companies can meet the energy demands of manufacturing and industrial processes by electrifying industrial equipment and machinery. This includes replacing conventional fuel-powered equipment with electric alternatives, such as electric boilers, furnaces, and heat pumps, which are more efficient and environmentally friendly. Electric systems tend to have superior design, yield, process controllability, and flexibility compared to conventional systems, making them more attractive to industrial manufacturers.
Electric Motors
Electric motors are another way electric companies can increase demand in the manufacturing and industrial sectors. These motors are used in various applications, including compressors, elevators, and pumps, and contribute to a significant portion of global electricity consumption. Original equipment manufacturers (OEMs) are releasing motors with higher low-voltage ratings, which support the sustainability objectives of industrial companies.
Electric Vehicles
The adoption of electric vehicles (EVs) in industrial fleets is also increasing demand for electricity. By switching from fossil fuel-powered vehicles, such as trucks and forklifts, to electric alternatives, manufacturing and industrial companies can significantly reduce their greenhouse gas (GHG) emissions.
Renewable Energy Sources
Electric companies can also increase demand by providing renewable electricity generated from sources like solar and wind power to manufacturing and industrial companies. This helps these sectors reduce their environmental impact and meet sustainability goals.
Overall, electric companies can increase demand in the manufacturing and industrial sectors by offering efficient, flexible, and environmentally friendly alternatives to conventional energy sources. This shift towards electrification aligns with broader energy transitions and sustainability initiatives, presenting a significant opportunity for electric companies to expand their customer base and contribute to a greener economy.
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Clean energy investments
The clean energy industry has seen remarkable progress over the past two years, with over $500 billion in clean energy investment and over 160 new manufacturing facilities or expansions announced. These investments are revitalizing communities, creating jobs, and driving economic growth. The US has also seen a manufacturing renaissance, driven by a new wave of scalable clean energy technologies, federal tax credits, and innovative companies.
The Inflation Reduction Act, passed in 2022, included incentives for domestic manufacturing, solar power manufacturing, and recycling. These processes will require electricity, adding to the current load. The Act is, however, under threat of being repealed, with 51 votes already taking place in the House of Representatives to repeal it.
The shift towards clean energy is also being led by data center owners, who are increasingly turning to renewable energy sources. Solar and wind capacity contracted to US data centers is expected to reach 41 GW by 2030. This shift is also driven by the need to reduce the price volatility of the natural gas market and the surge in wildfires exacerbated by climate change.
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AI and digital tools
The use of AI is becoming more widespread, with enterprises pushing to integrate AI and machine learning tools into their tech stacks to drive core businesses. This will lead to a greater need for high-density data centres and the electricity to power them. Goldman Sachs Research forecasts that global power demand from data centres will increase by 50% by 2027 and by as much as 160-165% by 2030. This will require significant investment in the electric grid, estimated at $720 billion through 2030.
However, AI can also help to facilitate the energy transition and balance its resource use and benefits. By analysing vast datasets, AI can forecast energy production with remarkable accuracy, enabling job scheduling and load shifting to ensure data centres use energy when electricity from renewable sources is available, thus improving grid stability, efficiency, and clean power. Additionally, AI can help overcome barriers to integrating renewable energy into existing grids, ensuring optimal efficiency and 24/7 clean power.
While AI is increasing electricity demand, it is also important to note that other factors are at play, such as the increasing use of air conditioning, electric vehicles, and factories. Additionally, the growth in electricity demand can be viewed positively, as it is accompanied by an expansion of renewable and low-emissions electricity sources, such as solar power and nuclear power.
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Frequently asked questions
The surge in electricity demand is driven by a combination of factors, including the growing use of electricity for industrial production, increased demand for air conditioning, accelerating electrification, the expansion of data centres, and the adoption of electric vehicles.
Electric companies are addressing the surge in demand by investing in new infrastructure, such as transmission and distribution systems, as well as exploring new energy sources like wind, solar, and natural gas. Some companies are also leveraging AI and other digital tools to integrate distributed energy resources (DERs) into the grid.
Data centres are significant contributors to the surge in electricity demand, especially with the rise of cloud computing, big data processing, and artificial intelligence. The electricity demand from data centres is expected to triple by 2030, putting a strain on certain regions.
The surge in electricity demand is expected to have a significant impact on energy systems, including the need for new infrastructure and generation capacity. It also presents challenges for governments in ensuring a secure, affordable, and sustainable electricity supply.
The surge in electricity demand is expected to drive up electricity prices and create "stranded" costs and assets for electric companies. Additionally, there is pressure on companies to meet new loads with clean generation to address environmental, social, and governance goals.
