The AI Boom: A $1 Trillion Opportunity for Renewables

In a recent report by Goldman Sachs, the ravenous power demands of artificial intelligence are predicted to require almost $1tn in investment in energy in Europe and the US over the next decade. The US investment bank has said that AI is set to be a key driver in increasing the electricity demand of data centres globally by 160% by 2030, with growth in Europe predicted to be especially sharp.

On average, a ChatGPT query needs nearly 10 times as much electricity to process as a Google search. As the pace of efficiency gains in electricity use slows and the AI revolution gathers steam, Goldman Sachs Research estimates that data center power demand is set to grow 160% by 2030.


Current Energy Consumption of AI in 2024

At present, data centers worldwide consume 1-2% of overall power, but this percentage will likely rise to 3-4% by the end of the decade. In the US and Europe, this increased demand will help drive the kind of electricity growth that hasn’t been seen in decades.

The report estimates the overall increase in data center power consumption from AI to be on the order of 200 terawatt-hours per year between 2023 and 2030. By 2028, Goldman Sach’s analysts expect AI to represent about 19% of data center power demand.


Projected Growth of Data Centre Power Demands in the United States and Europe

Big technology companies have been racing over the past year to build the data centers needed to power applications such as OpenAI's viral ChatGPT as they try to capitalize on what is expected to be the industry's next key growth driver.

Florida-based NextEra Energy NEE.N, the world's largest renewable energy company, said it had data centers in its project queue that would use more than three gigawatts (GW), or nearly enough to power all homes in the state of Minnesota.

Over the past 15 years, Europe’s power demand has been severely hit by a sequence of shocks: the global financial crisis, the covid pandemic, and the energy crisis triggered by the war in Ukraine.

Going forward, between 2023 and 2033, thanks to both the expansion of data centers and an acceleration of electrification, Europe’s power demand could grow by 40% and perhaps even 50%, according to Goldman Sachs Research. At the moment, around 15% of the world’s data centers are located in Europe. By 2030, the power needs of these data centers will match the current total consumption of Portugal, Greece, and the Netherlands combined.

In Europe, Goldman believes utilities from Germany, like EON EONGn.DE, Ireland and UK would have the highest power demand as they are financial hubs and host to many tech companies and have the resources to offer tax incentives.

The brokerage also thinks that power demand will be strong in areas like Spain, France and the Nordics because they have cheap and abundant base load power (nuclear, hydro, wind, solar) which it says could help energy companies.


Assessing the Hype: AI's Power Usage and Demand

In opposition, some sources report that the energy demand is overhyped. Since 2008, demand is up just 1.4 percent. That’s the total increase over 16 years, not the average gain. And that 1.4 percent is within the range of normal variation in the period. The key error being made is adding up new electric uses without subtracting old practices that are being replaced. This applies to cloud storage and AI, but not electrification of transportation and heating.

AI uses a great deal of electricity however as we cannot simply add up the electric demand from AI; we must also subtract uses that will be reduced by AI. For example, one widespread use being rapidly adopted is AI for customer service. When AI can answer a customer’s question, then no customer service rep sits in front of a screen, which is connected to a computer, which is linked to a database, all in a heated building. A 15-second AI response may replace five minutes of the rep’s time. Which solution uses more electricity?


The Opportunity for Renewables

Data centers are likely to create growth opportunities for a range of power sources, including natural gas, nuclear power, wind power, solar power, hydrogen, and energy storage systems. In particular, renewable energy systems may help meet the AI-induced power demand while also keeping companies on track towards their clean energy targets. Microsoft aims to match 100% of its electricity consumption to zero carbon energy sources, 100% of the time, by 2030. Google pledged to power its operations with carbon-free energy 24/7 by 2030, and Meta also committed to reaching net zero emissions across its value chain by the end of the decade.


Potential Natural Gas Boom Driven by AI's Rising Electricity Needs

Power companies claim that AI could drive a natural gas boom as power companies face surging electricity demand. Natural gas is expected to supply 60% of the power demand growth from AI and data centers, while renewables will provide the remaining 40%, according to the Goldman Sachs’ report.

Gas demand could increase by 10 billion cubic feet per day by 2030, according to Wells Fargo. This would represent a 28% increase over the 35 bcf/d that is currently consumed for electricity generation in the U.S, and a 10% increase over the nation’s total gas consumption of 100 bcf/d.

“That’s why people are getting more bullish on gas,” comments Roger Read, an equity analyst and one of the authors of the Wells Fargo analysis; “Those are some pretty high growth rates for a commodity.”


Concerns Over Grid Reliability Due to Increasing Power Demands

Dominion Energy, laid out scenarios in its 2023 resource plan that would add anywhere from 0.9 to 9.3 gigawatts of new natural gas capacity over the next 25 years. The power company said gas turbines will be critical to fill gaps when production drops from renewable resources such as solar. The turbines would be dual use and able to take clean hydrogen at some point.

Renewables will play a major role in meeting the demand but they face challenges that make gas look attractive through at least 2030, Read, the Wells Fargo analyst, told CNBC.

Many of the renewables will be installed in areas that are not immediately adjacent to data centers, he said. It will take time to build power lines to transport resources to areas of high demand, the analyst said.

Nuclear is a potential alternative to gas and has the advantage of providing carbon free energy, but new advanced technology that shortens typically long project timelines is likely a decade away from having a meaningful impact, according to Wells Fargo.


Final Thoughts

Though the impact of AI is still to be determined and under question, data centers are projected to consume a growing share of electricity with the US and Europe preparing for unprecedented growth in overall energy consumption. While renewables are positioned to meet a significant portion of this demand, the role of natural gas remains critical in ensuring grid reliability. This shift underscores the urgent need for strategic energy planning and investment to support the burgeoning AI sector, while also highlighting the potential for AI to drive efficiency gains that could offset some of its power demands. Balancing these dynamics will be key to sustainably powering the next era of technological advancement.

The AI Boom: A $1 Trillion Opportunity for Renewables
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Spencer Ogden
02 JUL 2024
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