Artificial intelligence and the data centers that enable this new technology consume a staggering amount of energy. As artificial intelligence becomes more sophisticated and more embedded in our daily lives, these energy demands are only expected to grow.
While data centers currently use around 1 to 2% of the world's power, this is expected to increase to 3 to 4% by about 2030.[1] This isn’t a surprising prediction when the energy cost of artificial intelligence is quantified. Estimates are that for some artificial intelligence tools, generating an image can use the equivalent amount of energy as charging a cell phone.[2] Asking ChatGPT a question uses about 10 times as much energy as a typical Google search.[3]
Rob Nicholson, Head of Renewable and Energy Transition, Canadian Power, and Utilities and Infrastructure at RBC Capital Markets, spoke with John Kousinioris, CEO of TransAlta, at the recent Energy Disruptors UNITE Summit about the impacts of artificial intelligence on energy demand.
Balancing affordability, reliability and decarbonization
TransAlta is an energy producer serving markets in Australia, Canada and the United States. The company has gone through an enormous transformation in recent years. Once heavily reliant on coal and one of the largest coal fire power generators in Canada, it enacted a phased coal to gas transition at its power generation facilities in the country, which was completed in 2021.[4] Currently, TransAlta has set the goal of generating more than two-thirds of its profits from renewable electricity production by 2028.[5]
While decarbonization is an important goal for the business, CEO John Kousinioris is clear eyed about the challenges of meeting energy demands in the years ahead. The three markets that TransAlta operates in are unique in their own ways, yet they all face the same fundamental challenges.
“We're going to stumble through the evolution, I think, or the energy transition that's taking place in all three markets,” Kousinioris explains. “All are struggling to meet the needs of affordability, reliability and decarbonization. A lot of emphasis on decarbonization over the last number of years. At times, I think if we're honest, at the expense of affordability and reliability.
“We see reliability problems in Alberta. We see reliability problems in the Pacific Northwest, and we see reliability problems in Western Australia, and I hope I'm wrong, but I suspect they're going to become more acute over time, until they get better.”
As energy demands ramp up, balancing affordability, reliability and sustainability will be a key challenge for energy producers while they work to ensure the needs of consumers, regulators, businesses and the environment are all being met.
Understanding accelerating energy demands
The energy demands made by artificial intelligence are only escalating the challenge for energy producers.
“If you go from now to 2030, you're looking at somewhere between 20 to 25% — a compound annual growth rate in the demand that data centers are going to have,” says Kousinioris. “So, it's sort of staggering. If that is right, from a prediction perspective, you're going to need somewhere like 50 to 60 gigawatts of new generation installed in the U.S., conservatively. Which, just to give people a bit of perspective, is two and a half times to three times the amount of installed capacity that a province like Alberta has.”
“By 2030, we expect to need approximately 50 to 60 gigawatts of new generation installed here in the U.S.”
John Kousinioris, CEO, TransAlta
One nuclear power plant produces, on average, 1 gigawatt of energy, so meeting the increased need would require something on order of 50-60 new nuclear power facilities just to keep pace.
In fact, the strain that data centers can place on surrounding infrastructure has led some locales to opt out of hosting them.
“We're hearing more about local resistance to building out these big data centers,” Nicholson comments. “People are starting to realize that it actually has an impact on their retail price of electricity at home. It has an impact on water supply. It has multiple impacts.”
In addition, the strain felt on energy infrastructure in many areas is not coming from AI alone. Other factors, including the adoption of EVs and cloud computing, are also contributing to the issue.
The challenge of filling the demand gap
While the need is clear, filling the gap is less straightforward. Overall, the environment can be very challenging, especially when it comes to creating new power generation facilities. Energy producers face long lead times for permitting, supply chain issues for hardware, and labor supply constraints. As an example, with only three OEMs supplying North America, it can take up to three years for wind turbine hardware to be delivered.
As needs have changed, the landscape has changed as well. Customers have shifted away from concerns around project costs and if a project will be delivered, to instead focus on speed of delivery. In short, customers are less price sensitive about power, and time to accessing power supplies has become the number one driver of decision making.
“Am I excited as somebody that leads an independent power producer? Hugely excited,” explains Kousinioris. “I think the opportunity set is huge, huge, like unprecedented. A once in a generation kind of opportunity. But I think it's going to be challenging. It's going to be challenging to kind of hit all of the holistic targets that we have.”
“I think the opportunity set is huge, huge, like unprecedented. A once in a generation kind of opportunity. But I think it's going to be challenging.”
John Kousinioris, CEO, TransAlta
Charting the path forward
Looking to the future, there are several areas of focus that will help enable energy suppliers to meet coming demands.
“One, I would say I think we need to do a better job of feathering in the renewables with energy generation and attributes that provide reliability,” Kousinioris remarks. “So, I think setting reasonable decarbonization targets with an eye to reliability and affordability for consumers is critical.”
Another area will be looking for any efficiencies that could be built into the permitting process. And finally, ensuring that there is a stable regulatory environment, which allows businesses to approach forward planning with more certainty.
What’s clear is that a mix of energy sources will be needed to meet the challenges ahead – and energy producers will need to be creative and strategic to meet the unprecedented demand.