Electrical energy consumption by US data centers set to hit unprecedented highs
The power sector in the United States and globally is witnessing a significant shift, with electricity demand on the rise and renewable energy sources taking centre stage.
According to the International Energy Agency (IEA), US electricity demand is projected to grow by 2.3% this year, marking a substantial increase from the average annual growth rate of the last decade. The main drivers of this growth are building electrification, the expansion of data centres, industrial growth, and the increasing adoption of electric vehicles. This has led to a forecasted 2.5% compound annual growth rate (CAGR) in US electricity demand through 2035, a considerable jump from the 0.5% CAGR recorded from 2014 to 2024.
Renewable energy sources, particularly solar and wind, have been the primary sources meeting this growing demand. Solar generation increased by 27% between 2023 and 2024, accounting for 7% of total US electricity generation and surpassing hydropower production for the first time. Solar plus wind together added 97 TWh of generation in 2024, outpacing gas generation growth and compensating for a decline in coal generation. Wind generation also rose by 8%, currently making up around 10% of the US electricity mix.
The decline in coal generation is partly due to the growth in renewables and increased fuel costs that are impacting natural gas and coal economics alike. By the end of this year or early next, renewables are expected to outpace coal in the global power generation mix, according to the IEA.
However, the clean energy industry is facing challenges. Thomas Byrne, CEO of CleanCapital, has expressed concerns about the hurdles the sector is encountering. Izzet Bensusan, CEO of Captona, warns that sudden, deep cuts in interest rates could drive up project costs and cut into returns. Currently, interest rates in the US are between 4.25% and 4.5%. The high-interest rate environment and potential policy changes from Washington pose additional challenges.
In international news, some of India's refineries, which rely on Russian oil, were hit with additional sanctions from the European Union last week. Finding a replacement for Russian crude at the volumes India now imports would strain the market. US President Donald Trump has threatened to impose an unspecified penalty on India on top of a 25% economy-wide tariff because of the country's imports of Russian oil, potentially straining the relationship between the US and India.
Meanwhile, China will account for more than 50% of global electricity growth this year. The rising need for power in data centres, combined with increasing natural gas prices, leads more power plants to switch from gas to coal. Despite this, the IEA predicts that coal's share in the global power generation mix will continue to decline.
In conclusion, the transition towards cleaner energy sources is underway, with renewables leading the charge in meeting the growing electricity demand in the US and globally. However, the clean energy industry faces challenges, and geopolitical tensions related to energy trade could have far-reaching implications.
[1] Source: US Energy Information Administration (EIA) [2] Source: International Energy Agency (IEA) [3] Source: BloombergNEF [4] Source: Forbes
- The growth in renewables, particularly solar and wind, has not only led to a rise in electricity generation in the US but also sparked a significant shift in the global power sector, as predicted by the International Energy Agency (IEA).
- The increased adoption of renewable energy sources and the expanding demand for electricity in sectors like technology and industry are reshaping the US finance landscape, with clean energy companies seeking investment and policy support from the general-news-focused public.
