US Utilities Could Supercharge CapEx to Keep Pace with Deluge of Data Center Electricity Demand

Hyperscalers like Amazon and Microsoft are expected to spend hundreds of billions of dollars expanding their vast data center networks throughout the decades to come. The adoption of generative AI applications has greatly expanded the electricity demand emanating from these facilities and, therefore, stress on the US power grid. That is a departure from most of the twenty-first century, which seen commercial and industrial electricity needs stagnate.

Accommodating the rapid pace of data center expansion will require a drastic adjustment to the capex schedules of American utilities firms. Some, including Duke Energy and Southern Company, have recently boosted their five-year capex outlays by double-digit percentages. The AI boom has exposed years of underinvestment in the US’s power grid that must now be addressed. Fortunately for utilities, the Federal Reserve expects to gradually cut interest rates throughout the next several years, easing the expenses that will come along with debt-intensive capital investments.

Related ETFs & Stocks: Utilities Select Sector SPDR Fund (XLU), Global X Data Center REITs & Digital Infrastructure ETF (VPN), Duke Energy Corporation (DUK), Dominion Energy, Inc. (D), The Southern Company (SO)

Building on its now $4 billion position in $18.4 billion AI startup Anthropic, following the announcement that the company had invested an additional $2.75 billion yesterday, Amazon will be expanding its data center presence to the tune of almost $150 billion in the coming fifteen years. Data centers are at the heart of a sudden uptick in electricity usage unlike anything seen thus far in the twenty-first century, likely to inspire a boom in utility prices and construction.

Per the International Energy Agency, the US’s 2,700 data centers consumed more than 4% of the country’s total electricity in 2022, a figure projected to grow to 6% over the next two years. The reality is, however, the preparedness of utilities to handle the blooming needs of data centers is uncertain. Bloomberg notes that utility provider Dominion Energy Inc. previously had trouble keeping up with already explosive growth in Virginia’s data center demand in 2022, pausing connections to facilities that were otherwise ready to come online. Dominion expects such demand to grow by at least 85% throughout the next decade-and-a-half. As it stands today, reports like those from by Grid Strategies, estimate that electricity demand is set to grow by an annual rate of 0.9%, while the capacity added to the grid is planned to increase by just 0.5%.

Per Newmark, hyperscalers like Amazon and Microsoft – owners of larger data centers that operate facilities directly under their own management – currently need anywhere from 10-14 kilowatts (kW) to power each rack currently in data centers, but this is likely to…