Andy DeVries: Data centers drive utility growth to 8%

Key Takeaways

• Data centers are driving significant growth in the utilities sector, with some companies experiencing growth rates as high as 8%.
• The power consumption of data centers is expected to increase dramatically by 2035, necessitating careful supply-side planning.
• Utilities are strategically positioned to support data center growth due to their substantial near-term supply capabilities.
• There is potential oversupply in the data center market, raising concerns about whether demand will meet this increased capacity.
• Texas energy demand is projected to be significantly higher than zero, with estimates closer to 30 gigawatts.
• The expansion of LNG exports may result in higher gas prices for American consumers due to increased competition with European buyers.
• Significant cash collateral postings from major market players indicate a strong future demand for LNG.
• Utilities are planning to build out twice the capacity forecasted to be needed by 2030, reflecting ambitious growth strategies.
• Hyperscalers account for a substantial portion of data center energy demand, highlighting their influence on the energy market.
• The rise of data centers could potentially lower consumer electricity bills by spreading costs among more buyers.
• Utilities have increased their growth rates due to data center expansion, with some reaching up to 8% annually.
• The dynamics between data center power consumption and utility supply are crucial for understanding future industry trends.
• Utilities are financially incentivized to invest in infrastructure that supports data center growth.

Guest intro

Andy DeVries is co-head of investment grade credit and head of utilities and power at CreditSights. He has over 18 years of experience covering the natural gas and power sectors. DeVries analyzes utilities’ infrastructure overbuild relative to data center demand forecasts, projecting capacity twice what is needed by 2030.

Data center growth and utility impact

• Utilities have generally grown around four, five, 6% a year and then that’s moved to five to 7% a year and now certain names are up to 8% a year.

  — Andy DeVries

• Data centers are a key driver of increased growth rates in the utilities sector.
• The financial performance of utility companies is significantly impacted by data center expansion.

• Data centers now are consuming around 45 gigawatts of power… you need to add 50 for 2035.

  — Andy DeVries

• Utilities have a substantial near-term supply capacity, positioning them well to support data center growth.

• They’ve got around a 140 gigawatts of near term supply now… it boosts their earnings growth.

  — Andy DeVries

• The relationship between data centers and utilities is financially beneficial for the latter.
• Understanding the demand and supply dynamics is crucial for future planning in the data center industry.
• Utilities are incentivized to invest in infrastructure that aligns with data center growth.

Oversupply concerns in the data center market

• There is a lot of supply of data centers coming and it’s very unclear if there’s gonna be demand for this.

  — Andy DeVries

• The potential oversupply of data centers raises concerns about market saturation.
• Understanding current market dynamics is essential for forecasting future demand.
• The balance between supply and demand is a critical factor in the data center industry.
• Oversupply could lead to increased competition and potential financial challenges for data center operators.
• Companies must carefully assess demand forecasts to avoid overbuilding.
• The data center market’s growth trajectory requires careful analysis to ensure sustainable development.
• Stakeholders need to consider the implications of potential overcapacity on their investment strategies.

Texas energy demand projections

• I said to the CFO of Encore, I said there’s just no way he said it might not be 30 but it’s gonna be closer to 30 than it is zero.

  — Andy DeVries

• Energy demand in Texas is expected to be significantly higher than zero, with estimates closer to 30 gigawatts.
• Understanding the dynamics of energy demand in Texas is crucial for future planning.
• The conversation with industry leaders provides insight into projected energy needs.
• Accurate demand forecasting is essential for effective energy infrastructure planning in Texas.
• Stakeholders must consider regional demand variations when planning energy investments.
• The Texas energy market presents unique challenges and opportunities for growth.
• Projections indicate a robust demand for energy, necessitating strategic planning and investment.

LNG exports and domestic gas pricing

• One of the sort of policy debates around the whole question of building out LNG terminals is it’s gonna make gas more expensive for American consumers.

  — Andy DeVries

• The expansion of LNG exports could lead to higher domestic gas prices due to increased international competition.
• Understanding the dynamics of LNG exports is crucial for assessing their impact on domestic markets.
• The policy debate around LNG terminals highlights potential economic implications for consumers.
• Increased competition with European buyers could drive up gas prices in the US.
• Stakeholders must consider the international demand for LNG when planning domestic energy strategies.
• The LNG market presents both opportunities and challenges for US energy policy.
• Significant cash collateral postings indicate strong future demand for LNG, impacting market dynamics.

Utility capacity planning and future growth

• Utilities are already committed to building out I guess twice as much capacity as is forecast to be needed by 2030.

  — Andy DeVries

• Utilities are planning substantial capacity expansions, reflecting ambitious growth strategies.
• Understanding energy demand forecasts is crucial for effective capacity planning.
• The commitment to building out capacity highlights the utilities’ confidence in future demand.
• Stakeholders must consider the implications of capacity expansion on investment strategies.
• Utilities’ growth plans align with projected increases in energy demand.
• Effective capacity planning is essential for meeting future energy needs and supporting economic growth.
• The utilities sector is poised for significant expansion, driven by demand forecasts.

Hyperscalers and their impact on energy demand

• All the hyperscalers combined are around 15 gigawatts and that’s gotta be over half the data center demand.

  — Andy DeVries

• Hyperscalers account for a substantial portion of data center energy demand, influencing market dynamics.
• Understanding the scale of energy consumption by major tech companies is crucial for planning.
• The role of hyperscalers in the energy landscape highlights their influence on supply and demand.
• Stakeholders must consider the implications of hyperscaler demand on energy infrastructure.
• The energy needs of hyperscalers present both challenges and opportunities for utilities.
• Effective planning is essential to accommodate the significant energy demands of hyperscalers.
• The influence of hyperscalers on the energy market underscores the importance of strategic planning.

Economic implications of data center emergence

• The emergence of a data center can actually lower the a consumer’s electricity bill because there’s just that simple math.

  — Andy DeVries

• Data centers can potentially lower consumer electricity bills by distributing costs among more buyers.
• Understanding the financial dynamics of data center construction is crucial for assessing their economic impact.
• The cost distribution principle highlights a key economic benefit of data center growth.
• Stakeholders must consider the potential benefits of data centers for consumers.
• The emergence of data centers presents opportunities for cost savings in utility pricing.
• Effective planning and investment strategies can maximize the economic benefits of data center growth.
• The financial implications of data centers underscore the importance of strategic planning in the utilities sector.