Our South Asia Energy Analyst Mayank Maheshwari discusses how the
unprecedented demand to power AI is set to transform the power
industry for years to come.
Read more insights from Morgan Stanley.
----- Transcript -----
Mayank Maheshwari: Welcome to Thoughts on
the Market. I’m Mayank Maheshwari, Morgan Stanley’s South Asia
Energy Analyst.
Today: how AI and electrification are rewriting the rules of
global power.
It’s Tuesday, December 2nd at 9 pm in Singapore.
If you’ve noticed your electricity bills are climbing and
headlines are buzzing with talk of AI, you’re not alone. The way
we use – and need – power is changing fast, and it’s impacting
everyone from homeowners to major tech companies.
Global power consumption is surging at the fastest pace in over a
decade. Annual demand is set to rise by more than one trillion
kilowatt-hours every year through 2030, with AI-driven data
centers contributing nearly a fifth of that growth. We estimate
about [U.S.]$3 trillion investments in datacenters by 2028, with
power consumption growth of nearly about 126GW in these three
years till [20]28. This is almost as large as Canada’s total
[annual] power consumption.
And in this context, power prices are set to further rise. In
2024 – the latest full-year data available – global power sector
investments hit a new high of $1.5 trillion, and consumer power
prices have risen by about 15 percent. By 2030, U.S. power
markets will account for half of the global data center power
consumption. And Asia will also see about a 15 percent spillover
of that U.S. hyperscaler demand, which will be also part of why
some of the power markets in Asia will get a lot tighter.
As power consumption rises, the difference between the price at
which electricity is sold and the cost to generate it – also
known as power spreads – are likely to rise by nearly 15 percent.
This expansion in profit margins could lead to higher earnings
forecasts for power generation companies and create $350 billion
in value creation through the entire power supply chain.
At the same time, years of under-investments in electric grids
have led to bottlenecks, sparking a wave of new spending and
pushing the industry to rely more on natural gas and energy
storage and other new technologies – while also supporting that
option of renewable power. In 2024, gas investments hit record
highs, and starting in 2026 gas is set to become a new truly
global source of new power generation. Looking ahead, natural gas
is expected to meet about a fifth of [the] world’s new power
needs, excluding China. And nuclear energy is well positioned for
increased investments; while batteries – which is energy storage
– is also getting to get a new set in terms of new investments
across datacenters and in markets like China .
Moving forward, the power industry faces a multi-decade
transformation, marked by unexpected shifts and opportunities.
We’ll see increased collaboration between fossil and non-fossil
fuels, wider adoption of tiered pricing, and a surge in spot
market and behind-the-meter sales all driving longer-lasting,
elevated power spreads. Gas, nuclear, energy storage, and fuel
cell supply chains – especially in Asia and the U.S. – stand to
gain from stronger pricing power [and] new growth prospects,
while grid operators benefit from higher investment and better
returns. On the flip side, pure solar and
wind producers may continue to see rising costs in Asia,
something we have already seen in [the] U.S. and Europe, as [the]
global grid leans more on batteries and steady fossil fuel
supplies to balance the requirements of the rising needs of power
across the supply chains – in AI as well as domestic utilization
of manufacturing.
Ultimately, as AI and electrification supercharge power demand,
the real challenge isn’t just adding renewables. It’s about
building a resilient, flexible grid and navigating the new
economics of energy.
Thanks for listening. If you enjoy Thoughts on the Market, please
leave us a review wherever you listen and share the podcast with
a friend or colleague today.
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