ChatGPT and other large language models are now used in a variety of industries and while the ethics are still being worked out, many industries are already using this technology to improve efficiencies.
However, one somewhat overlooked aspect of the boom in AI is the sheer demand that these technological advances are going to place on power grids.
Nvidia is the current poster child for GPUs, or graphic processing units, and it is useful to look at the power demand of their GPUs or chips to understand the extent of the upcoming power demand. For example, their A100 chip, which came out in 2020, has a power draw of about 400 watts. The more recent H100 GPU, which came out in late 2022 and is designed for AI applications, draws approximately 700 watts. Assuming a utilization rate of a little over 60 per cent, each one of those chips has the same power demand as an average US household, or about 3740 kilowatt hours.
Industry expectations are that by the end of this year, 3.5 million H100s will be in operation which translates to a 2.7 per cent increase in energy demand over a couple of years, just from AI. This does not even take into account the new B200 GPU, expected to drop in early 2025 which is anticipated to draw as much as 1000 watts.
This increase in power demand comes at a time when our power grids are already stressed as they embark on the energy transition away from fossil fuels.
Fossil fuels are obviously not good for the planet, but they have provided power at a consistent and constant rate for decades. Power supply from renewables, on the other hand, is more intermittent which makes finding appropriate battery storage solutions a priority.
Along with the increased demand from AI, data centres are also putting pressure on power grids. As the below McKinsey chart highlights, demand from data centres in the US alone is forecast to increase from approximately 14 gigawatts in in 2020, to approximately 35 gigawatts in 2030. That’s a doubling and a half in power demand from data centres over the course of this decade.
At the same time, nations are in the middle of a number of other processes that require more electricity. These include electrifying vehicle fleets; building and running new factories as more supply chains are re-shored; and switching a number of fossil fuel based industrial processes to electricity.
The combination of all these additional demands on the power grid will require massive investment into electricity networks, which is going to add to the asset base of utility companies. Utilities are usually regulated, earning a regulator-determined “appropriate” return on their underlying assets. So, the more investment that goes in, and the higher the earnings, the higher the cash flows, and the higher the dividends, making them a very attractive long-term investment proposition.
These trends that are underpinning power growth are not going away anytime soon and are going to drive growth over the coming decades.
The utility sector might be a little unloved in the current market, but it has a stellar growth profile, that is not dependent on economic growth, making it a favourite in many of our funds.
Nick Langley, senior portfolio manager, ClearBridge Investments
