Surging electricity demand

The explosive growth of artificial intelligence (AI), data centers, and electric vehicles is placing a strain on the electric grid. Global electricity demand is experiencing an unprecedented surge fueled by technologies such as AI, with data centers projected to account for 20% of this increasing requirement. Electricity demand is set to rise to more than 1T kWh by 2030. This will force power networks to expand their total capacity two-fold by the year 2050. 

Following the 2008 financial crisis and subsequent economic recession, gains in energy efficiency and flat industrial demand kept electricity demand at a standstill. After decades of little change, the grid was built and managed in an era of relative power stability. But thanks to new energy-intensive technologies like AI and electric vehicles, demand for electricity is surging. The U.S. Energy Administration (EIA) projects demand will increase 25% by 2030 and up to 78% by 2050. 

What drives grid stress?

Grid stress occurs when electricity demand outpaces available electricity generation and transmission capacity. Current factors contributing to stress on the grid include:

• AI data center boom: Hyperscale data centers and cloud computing require continuous, 24/7 power.

• Climate change: Extreme weather conditions are further stressing the power grid.

• Aging infrastructure: The aging grid is struggling to keep up with surging power demands. 

As framed by one of the largest U.S. grid operators, PJM Interconnection, the “new generation simply cannot be built fast enough to offset the combined effect of retiring supply amid surging demand.” 

Retiring the aging grid

The U.S. electrical grid has an average age of 40 years, with 70% of its transformers and power lines having been in service for more than 25 years. The European grid is under similar stress, with 40% of its distribution grids also exceeding 40 years old. 

One-way power flows, designed to move electricity from power plants to the consumer, have failed to keep up with today’s decentralized needs. Modern power solutions require two-way flows that can load-balance multiple, variable energy sources. 

Grid modernization and the smart grid

Grid modernization will require the strategic upgrade of the electric grid from a one-way, centralized system to a dynamic, bi-directional network integrating “smart grid” technology, renewable energy sources, and real-time data communications to monitor and manage power loads. 

The companies at the forefront of grid modernization are not the large hyperscalers driving the $725 billion AI infrastructure spending boom. Industrial leaders such as Siemens AG, ABB Ltd, GE Vernova, Eaton, and Schneider Electric stand to benefit from the $21 trillion of investment for the grid upgrades required by 2050. 

Key takeaway

While investor attention remains primarily focused on other bottlenecks of AI, such as semiconductors and memory, electric infrastructure provides a diversified exposure supported by trillions of dollars of future investment. 

Our index approach

Our index approach targets companies integral to electricity distribution, the power grid, energy storage solutions, and EV charging infrastructure. The index targets firms that derive substantial revenue from:

• Smart grid and traditional grid infrastructure;

• Electrical systems, wiring, and cabling;

• Energy storage and battery technologies; and

• Charging equipment and related infrastructure.

Please note that electric utilities and semiconductors are excluded from this index.

The VettaFi Electric Infrastructure Index (ACDC) is available for licensing. To explore our methodology or learn more about our approach, click here.