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Why AI and energy are a dynamic duo in investment potential

By Maja Garaca Djurdjevic
4 minute read

The AI boom is fuelling investment opportunities in data centres and energy grids to meet the rising demand and renewable energy prospects.

Maple-Brown Abbott has allocated 37 per cent of its Global Listed Infrastructure strategy to US electric and multi-utilities, reflecting the firm’s strong conviction in the sector.

This strategic move underscores the firm’s trust in US-listed utilities, which are crucial to the rapid expansion of data centres in the United States – a country that hosts one-third of the world’s data centres.

Data centres, essential to the digital economy by supporting services ranging from cloud computing to e-commerce and artificial intelligence, are voracious consumers of electricity. The International Energy Agency’s Electricity 2024 report predicts global power demand from data centres could surpass 1,000 terawatts per hour (TWhs) by 2026 – a figure comparable to Japan’s entire electricity consumption.

Underscoring the “major opportunity” data centres present for regulated electric utilities to expand their customer base and revenue streams, Georgia Hall, ESG analyst, Global Listed Infrastructure at Maple-Brown Abbott said: “We are positive on the US electric utilities sector because of compelling valuations coupled with emerging opportunities around data centre growth, digitalisation and decarbonisation”.

“We believe underappreciated structural growth tailwinds will persist for decades to come but are not yet reflected in the market prices for these assets,” Hall said.

“Our current allocation of 37 per cent to US electric and multi-utilities in the Maple-Brown Abbott Global Listed Infrastructure strategy reflects our conviction in the sector.”

During a keynote speech at a conference in Melbourne in April, Blackstone chief executive and co-founder Stephen Schwarzman also highlighted an “explosion” in the construction of data centres.

“This is like something I’ve never seen,” he said.

He too noted that this heightened interest would necessitate a global effort to reinforce electricity grids to meet the substantial power demands of data centres.

“From an investor’s perspective, there’s something really weird that’s going to go on, and that lack of capacity in the electric grid in the industrial world, with AI and EVs, is creating enormous investment opportunities,” Schwarzman said.

Energy transition opportunity

The surge in power demand arrives as at a time when global power grids face strain during the transition from fossil fuels to cleaner energy sources.

Hall perceives this as an opportunity to expedite investments in energy transition infrastructure.

Amazon, Apple, Alphabet, Meta, and Microsoft, known as “hyperscalers”, have zero carbon or 100 per cent renewable commitments and heavily rely on data centres. Research by S&P Global Market Intelligence shows that these companies contribute over 45GW to global corporate renewable purchases, representing more than half of the market.

“Grid capacity is critical not only for the decarbonisation of the transport, industrial and residential sectors – but also for data centre interconnection. Integrating large quantities of variable solar and wind generation, whose peak output may not match moments of peak demand, requires significant investment and the sophisticated management of electrical grids. Hence, the timing of grid investment has never been more important,” Hall said.

“The long lead time of grid planning versus the shorter timeframe to plan and build data centres creates a potential shortfall of capacity, thereby placing pressure on utilities and regulators to accelerate investments.”

Exploring the idea of nuclear as an alternative to fossil fuels and a means to complement renewables, Hall said: “It is reasonable to assume that greenfield large and smaller-scale nuclear power plants are unlikely to solve the near-term need for load growth”.

“However, existing nuclear fleets with spare capacity have potential to assist hyperscalers with their electricity and zero carbon needs.

“That said, not all nuclear plants have this optionality. Nuclear power could solve for some, but not all, data centres’ electricity needs.

"Therefore, more creative solutions are needed for pairing renewables with baseload and/or energy storage technologies, where viable. Much of this comes down to technology and project development timelines, having the right policy incentives and ensuring bill affordability,” she said.

The United States leads the data centre market with 5,381 centres, followed by Germany with 521, and the United Kingdom with 514. Australia lags behind with 307 centres compared to its peers.