A catalyst for accelerated demand on power grids, reveals ClearBridge Investments

ClearBridge Investments, a global equities investment manager, has today highlighted the substantial impact of the burgeoning artificial intelligence (AI) sector on the utility industry, with a focus on the surging demand for power.

Nick Langley, Senior Portfolio Manager at ClearBridge, noted “Advancements in AI technology, particularly the increasing reliance on high-powered GPUs, are setting the stage for significant shifts in energy consumption patterns.

“The past 18 months alone have been monumental for AI,” said Langley, pointing to the widespread adoption of generative AI technologies like ChatGPT across various industries.

While the integration of AI continues to evolve, an often overlooked consequence is the substantial energy requirements these technologies demand.

Langley drew attention to the example of Nvidia, a leading manufacturer of GPUs that are integral to the infrastructure behind AI. The power consumption of Nvidia’s chips, such as the A100 and the more recent H100, highlights the growing energy demands.

“The H100 GPU, designed for AI applications, draws approximately 700 watts. With over 3.5 million units expected to be operational by year-end, we’re looking at a significant uptick in energy consumption attributed directly to AI advancements,” he explained.

The demand emanating from AI-related data centres is compounding the strain on energy grids. According to a McKinsey report cited by Langley, demand from U.S. data centres is projected to more than double within this decade.

This surge in demand is occurring amidst broader challenges and transitions within the power sector, notably the shift away from fossil fuels towards more sustainable, yet intermittently available, renewable energy sources. The necessity for efficient battery storage solutions has become more pressing in light of these changes.

Langley also highlighted the broader context of increasing electricity demands due to the electrification of vehicles, reshoring of manufacturing, and the transition of industrial processes from fossil fuels to electric power.

“The cumulative effect of these demands necessitates substantial investment across our electricity networks,” Langley stated, underscoring the potential for significant growth within the utility sector.

“This scenario presents a compelling long-term investment opportunity, given that utilities typically earn a return on investment through regulated assets.”

Despite current market underestimations, Langley believes that the utility sector’s growth trajectory is remarkably robust and not directly tied to economic growth, making it a favoured allocation within ClearBridge’s global listed infrastructure investment strategies.

“We will continue to monitor these trends, recognising the critical role of the utility sector in supporting the continued growth and integration of AI technologies across industries.

“We believe utility sector’s importance in the investment landscape is poised to rise, driven by the essential need for increased power generation and infrastructure development,” added Langley.