A global surge in data centers is driving power demand to skyrocket, with usage expected to leap to 84 gigawatts in two years. Tech giants like Meta are investing billions in data center hubs, leading to a $364 billion capital expenditure in AI. However, this growth is straining an aging North American grid, posing reliability challenges.
The US faces capacity constraints as demand for power surges, pushing tech developers to look abroad. While North America leads in data center power markets, the Asia Pacific region is rapidly gaining ground. Beijing now ranks as the world’s second-largest market for hyperscaler power capacity. Fresh power development takes time, posing challenges for meeting growing demand.
Goldman Sachs analyst warns that bringing new generation resources online can take years, with large-scale projects like gas or nuclear plants facing longer timelines. The process of connecting new resources to the grid can also take up to five years on average. Only a fraction of generation projects requested between 2000 and 2018 were in commercial operation by 2023, highlighting delays in grid connection. The US electric grid is facing challenges as infrastructure ages, with 31% of transmission equipment and 46% of distribution equipment nearing the end of their useful life. The pace of grid development is slowing down, affecting industries like data centers, electric vehicles, and cryptocurrency mining.
To address the growing need for power-related equipment, companies like GE Vernova are seeing an increase in orders. Utilities are expected to spend $800 billion over the next five years and add more than 500,000 jobs by 2030 in the electric sector. However, meeting this demand will require significant capital and labor.
In response to the increasing demand for power, PJM held a capacity auction where generators offered an additional 2,669 megawatts of power supplies to be added through upgrades and new builds. This is the first time in four auctions that new capacity was added, but it only meets half of the expected demand over the next three years, impacting electricity bills.
Following a significant increase in utility clearing prices, Governor Josh Shapiro filed a lawsuit against PJM, claiming that poor processing capabilities had harmed customers. In response, PJM proposed a price collar for future auctions, resulting in higher prices that are expected to raise consumers’ electric bills by 1.5%-5% on average in the covered areas.
The stress on the electric grid from increased demand, particularly from data center clusters, is noticeable. Developers are seeking markets that can meet their needs for power, highlighting the strain on the grid. This underscores the importance of addressing infrastructure challenges and investing in upgrades to ensure a reliable power supply for the future. The data center industry faces multi-year project delays due to under-forecasting and insufficient communication, impacting key markets. The US is projected to meet demand with hundreds of gigawatts of new capacity expected. Tech giants like Amazon and Microsoft are striking deals with power producers to secure energy supply for data centers. Google and other players are working on grid management solutions to ease power demand. However, activist groups criticize the lack of transparency and push for cleaner energy policies. The energy industry is delaying the retirement of gas and coal plants to bridge the gap in capacity, according to Goldman Sachs and Bank of America. Industrial sector is also optimizing existing infrastructure. Regulators like FERC are pushing for grid reforms to accommodate new energy resources. Tech developers will need to adapt to manage increased loads.
Renewable energy sources like solar and wind face delays in connecting to the grid, leading some companies to consider gas turbines for quick deployment. Capital is not the main issue for AI progress, but rather the power needed to fuel it, says Goldman Sachs report. Jake Conley covers US equities for Yahoo Finance.
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Read more at Yahoo Finance: Big Tech is power-hungry, and America’s aging grid can’t keep up