Watts Up With AI: Strategies for Utilities in an Era of Surging Demand

Morningstar DBRS published a commentary examining how the rapid growth of artificial intelligence (AI) applications has led to a corresponding rise in electricity usage.

Key Highlights:
-- The rise of AI and the rapid expansion of data centers have led to surge in electricity consumption. The utilities industry is now facing challenges posed by these emerging technologies.
-- Rising AI and data center demands strain electricity supply, risking shortages and challenging grid capacity, especially during peak times. Balancing this growth with environmental goals presents a complex issue amid increasing carbon and water usage concerns.
-- To meet AI’s growing power needs, investment in renewables, battery storage, grid modernization, and collaboration with data centers are essential for sustainable energy management and environmental impact reduction.
-- Adapting to AI and data center growth offers utilities both risks and opportunities for efficiency and credit improvement.

“The rise of AI and the expansion of data centers are accelerating the transformation of the utility industry, which is a double-edged sword of both challenges and opportunities,” says Jasper Shi, Senior Analyst, Energy, Utilities, and Natural Resources. “Utilities that fail to adapt may face increased operational risks, potential losses from grid congestion, and transition risk over time resulting from the increased greenhouse gas emissions from data centers, negatively affecting their respective credit profiles.”