The demand for power from data centers is expected to triple by 2030, driven by the increasing use of artificial intelligence. According to Mizuho Securities, data centers will require 400 terawatt hours, or 50 gigawatts annually, which will represent about 9% of total U.S. electricity demand. The report also predicts that renewables will play a significant role in meeting this demand, with solar demand increasing by 7 gigawatts annually and wind growing by 5 gigawatts per year through 2030. This represents a substantial increase over current forecasts, with solar and wind having potential upside of 21% and 39% respectively.
Solar tracker companies such as Nextracker and Array are expected to benefit the most from this growth in renewable energy. Analysts suggest that companies like Nextracker could see a $4 upside to their current price target, while Array could capture $2 upside. This is due to their ability to ramp up production capacity quickly and efficiently, allowing them to meet the growing demand for solar energy in a capital light fashion. In contrast, solar module manufacturing stocks like First Solar may not see significant movement until the outcome of the November presidential election is determined.
While renewables will play a significant role in meeting the increased power demand from data centers, natural gas demand is also expected to rise. Mizuho predicts an increase of up to 4 billion cubic feet per day by 2030, or 4% of current U.S. production. Gas will likely serve as a backup power source, filling the gap when solar and wind power drops due to weather conditions. Gas producers such as EQT Corp. are expected to benefit the most from this increased demand, particularly in key data center markets in the Mid-Atlantic and Southeast.
Despite the high enthusiasm for AI power demand, the industry also faces multiple challenges and bottlenecks. New power projects can take up to five years to get permitted and connected to the grid, delaying the expansion of renewable energy sources. Additionally, renewable investments could be further delayed if a new administration cancels incentives under the Inflation Reduction Act or imposes higher import tariffs. This uncertainty adds a layer of risk to the future growth of renewable energy and the power demand from data centers.
The future of data centers and power demand is closely tied to the growth of artificial intelligence and the expansion of renewable energy sources. While renewables are expected to play a significant role in meeting the increased demand for power, natural gas will also serve as a vital backup source. However, challenges and uncertainties such as permitting delays and policy changes could impact the pace of growth in this sector. Data center operators, renewable energy companies, and gas producers will need to navigate these challenges to ensure a reliable and sustainable power supply for the future.
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