The expansion of datacenter capacity, propelled by the rise of GenAI, is driving a rapid increase in power consumption, particularly in the US. In this episode of RBC’s Industries in Motion, Shelby Tucker (Managing Director, US Power & Utilities Analyst), Elvira Scotto (Managing Director, Midstream & Pipelines Analyst) and Robert Kwan (Managing Director, Head of Global Power, Utilities & Infrastructure Research) at RBC Capital Markets explore the opportunities and challenges for power generators, regulated utilities and midstream infrastructure companies.
GenAI is fueling huge datacenter expansion
The rise of Generative AI and the resulting rapid expansion of datacenter capacities are creating considerable opportunity for power generators, regulated utilities and midstream infrastructure companies, according to the RBC Capital Markets Global Power, Utilities & Infrastructure Research team.
Datacenters consume vast amounts of electricity – to serve both computing power and cooling needs – and in the US, datacenters could represent about half of the power of demand growth through 2026, says Shelby Tucker, U.S. Power & Utilities Analyst.
“Demand driven by the growth in AI datacenters has combined with the surge in reshoring of manufacturing to drive commercial and industrial load growth to levels not seen since the early 2000s,” he says. “In recent months, utilities such as Georgia Power, Duke Energy, Arizona Public Service and others have projected significant increases in demand supported largely by datacenters. This in turn is driving the need for incremental investments to meet reliability.”
“Demand driven by the growth in AI datacenters has combined with the surge in reshoring of manufacturing to drive commercial and industrial load growth to levels not seen since the early 2000s.”
Shelby Tucker, US Power and Utilities Analyst, RBC Capital Markets
“Furthermore, we expect demand to accelerate beyond 2026 as the grid tries to catch up the large backlog of projects,” he adds.
Territories with “large load” customers seeing particular growth
Georgia Power has seen unprecedented interest in its service territories – resulting in a 17-fold increase in load growth versus its prior forecast.
“These forecasts are generally captured in Integrated Resource Plans, also known as IRPs,” Tucker explains, adding that aggregating those IRPs around the nation and funnelling them into the national load forecast reveals the extent of the growth potential.
For example, “the North American Electric Reliability Corporation's long-term 10-year peak demand was revised upward by about a CAGR of 30 basis points in its 2024 forecast alone,” Tucker adds. “Ultimately, we expect utilities whose service territories experienced higher interest from large load customers to continue to update IRPs and increase load forecasts more frequently – leading to the potential need for incremental resources.”
‘Clean power’ is extremely important, but natural gas will still play a crucial role in power supply
While natural gas will undoubtedly be a big part of the supply solution to meet rising electricity demand growth, renewable energy is also an important ingredient, particularly with many datacenter customers having net zero ambitions.
Robert Kwan, Head of Global Power, Utilities & Infrastructure Research, says a key message to emerge from RBC’s 2024 Global Energy, Power and Infrastructure Conference in New York was that many datacenter providers would “go to jurisdictions that can offer a quicker path to market and where it economically made the most sense to locate the facility – while dealing with the renewable power procurement separately, even if that meant a contract in a different geography”.
Tucker explains, “we definitely think that renewables and storage will primarily drive new generation additions. We project that solar additions can account for about half of the new capacity, with wind and storage solutions making up a big part of the remaining mix. In addition, we know that 85% of the active generation requests sitting in interconnection queues are renewables and storage projects.”
The interconnection queue between electric transmission requirements and the backlog of large-scale electricity transformers “is really one of the toughest challenges facing the industry,” he adds. “It has the potential to be the greatest bottleneck in the rapid deployment of large-scale datacenters.”
Natural gas will likely still play a big role in meeting the increasing demand for reliable base load power. Elvira Scotto, Midstream & Pipelines Analyst, points out challenges with pipeline capacity and permitting to meet higher natural gas demand, as pipelines are running essentially full.
“According to the Energy Information Administration, since 2013 natural gas demand has grown about 43% – while pipeline capacity has only grown about 25%,” she explains. “This has led to increased pipeline utilization.”
“According to the Energy Information Administration, since 2013 natural gas demand has grown about 43% – while pipeline capacity has only grown about 25%.”
Elvira Scotto, Midstream & Pipelines Analyst, RBC Capital Markets
For example, Kinder Morgan, which transports about 40% of the natural gas in the U.S. and supplies roughly 20% of the natural gas for power generation, had an average pipeline utilization rate of 87% in 2023, up from 73% in 2016. On peak days, pipelines are running at 100% utilization.
“We believe all of this should provide years of growth opportunities for midstream companies along the natural gas value chain”, Scotto adds.
Could ‘virtual power’ plug the remaining electricity supply gap?
With challenges relating to the supply of both natural gas and renewable energy, ‘virtual power’ could step up to fill the supply gap.
“I think we could see the potential for more virtual power plants – which is essentially the aggregation of power generated by several homes with rooftop solar and storage capacity, and then sold back into the grid,” Scotto explains. “The question there would be the ability to scale this power and the ability for the grid to handle more”.