Energy and AI

Answer: Artificial intelligence, or AI as it is frequently referred to, uses massive amounts of electricity. With the rapid growth of AI across all sectors of the economy and the increase in construction of high-demand data centers, the US power grid will need to adapt making your question quite pertinent. 

Increasing population and economic growth intensify the demand for electricity. Improvements in energy efficiency have offset those factors in recent years leaving power consumption at relatively flat levels.   

The impending AI boom will boost electricity demand and consumption into the near future and beyond. U.S. electricity demand is predicted to increase by an average of 2.8% each year between now and 2030, a huge jump from the average of 0.4% per year since 2000. In addition to AI, electric vehicles and other electricity-dependent emerging technologies will account for approximately one-third of the increase in demand for electricity. 

Having been in the mountains of Western North Carolina for Hurricane Helene, it is evident that our reliance on electricity and the internet is significant and increasingly important to our safety. Whether to provide communication and connections with First Responders and loved ones, to distributing fuel at gas stations, operating generators in grocery stores and homes, pumping water, and keeping hospitals open, virtually everything in our life is dependent on energy and internet connectivity. 

The U.S. power grid is comprised of various energy sources. The composition of this mix continues to shift over time. Today, natural gas is the largest provider, followed by nuclear, non-hydro renewables, coal, and conventional hydro. This is causing the electric power industry to get into a real growth mode for the first time since the late 20th century. There are questions whether the existing power infrastructure can be upgraded fast enough to manage growing needs. It won’t be easy, but the AI boom could provide opportunities. 

Elastic vs. Inelastic

Electricity is an inelastic commodity. The demand for electricity is constant. Even when prices increase, demand is not expected to decrease. The recent hurricanes are an example of people’s willingness to pay for access to electricity. It’s nearly impossible to put a price tag on a hot shower and cup of coffee after such an ordeal whether on Marco or in the mountains of North Carolina. 

An example of an inelastic commodity would be luxury goods and other discretionary items. Consumers may delay purchases of cars or appliances when prices increase. Gasoline is normally in this category too as consumers tend to  decrease miles driven in response to higher prices. The hurricane aftermath is an exception to this rule.

An increase in power bills hurts consumers, but for utility companies, it’s good for business. Utilities are regulated by state agencies, so prices are more stable compared to commodities like gasoline, but once these prices go up, they tend to stay there.

Upgrade

The American Society of Civil Engineers gave the U.S. electric power grid a C- grade on their latest Report Card for America’s Infrastructure. That’s not acceptable. In response to increased demand for electricity by AI, we need to focus on making critical upgrades to the nation's regional power grids. 

The expansion of data centers is concentrated in the Mid-Atlantic states such as Virginia but is taking place in Western states as well. Northern Virginia is home to the largest number of data centers globally. Other hotspots include Silicon Valley, Dallas, Chicago, and Phoenix. Improving connections between regional grids is  vital creating opportunities for technology suppliers and power companies to work on these projects. 

Earth, Wind and Fire

All electricity comes from somewhere. How it’s generated is what varies across the country. On the Eastern seaboard, natural gas power plants are most common. In the Western states, solar and wind developments predominate with land and sunlight being plentiful. 

No one source can meet the needs of projected AI growth and energy consumption. All sources will need to expand to keep up with demand. It’s obvious that coal usage is declining, placing greater focus on natural gas, nuclear hydroelectric, solar and wind power creation. With this comes opportunities such as new jobs, projects, and technologies. The times, they are a changing. Stay focused and plan accordingly.