When you think of companies whose valuations are soaring due to artificial intelligence, the ones that come to mind first are probably the chip designer Nvidia, whose shares are up 180% this year, or Elon Musk’s xAI, which its investors recently valued at $50 billion.
But aside from those, some of the best performing companies of this year have been those that own or supply equipment for the power plants that generate the energy to run all that AI infrastructure in the first place.
GE Vernova’s gas turbine orders have almost doubled so far this year, chief executive Scott Strazik said in an October earnings call; since then, the company has secured orders for another nearly 9 gigawatts’ worth of turbines in the U.S., the company said in an investor presentation Tuesday. “I can’t think of a time that the gas business has had more fun than they’re having right now,” Strazik told investors. The company’s stock is up almost 150% from the end of 2023.
Vistra, which owns over 40,000 megawatts of generation assets, including around 6,500 megawatts of nuclear power plants and more than two dozen gas-fired power plants, is planning on developing 2,000 megawatts of natural gas capacity, its chief executive Jim Burke said in November; its share price is up 272% for the year. The utility Entergy, which last week signed a deal with Meta to power a planned data center in northeastern Louisiana, is up 45%. Compare those impressive results to the S&P 500, which is up a healthy but comparatively modest 27% on the year.
Much of that enthusiasm comes from huge expected increases in energy demand. Grid Strategies, an energy policy consulting firm, last week updated its forecast for energy demand growth over the next five years, raising it from an increase of 39 gigawatts as of the end of 2023 to a rise of 128 gigawatts. That works out to annual projected growth of around 3%, compared to less than 1% annual growth in the first two decades of this century.
Where will all that additional energy come from? “Quite frankly, in the next five years, we’re going to see a lot of new gas turbines being built,” Cy McGeady, a fellow at the Center for Strategic and International Studies, told me, adding that the “prospects are good for a natural gas boom.”
The data centers that are driving renewable demand tend to require a constant flow of energy at all times — except when their power demands surge — while renewables are intermittent and may be far away from planned load growth. While so-called hyperscalers such as Amazon, Meta, and Google have made deals to support the development of 24/7 clean power sources like nuclear, the most optimistic time frame for any of these new developments to start producing power is sometime in the early 2030s.
Rob Gramlich, the president of Grid Strategies, told me the technology companies generating all this demand growth typically want it satisfied with renewables, but “they really need transmission in order to do that.”
“If everyone had done this 10 years ago, we could have connected a lot of generation a lot quicker. It could have been a lot cleaner generation mix,” Gramlich told me. Now, though, even if a utility wants to build solar, wind, and storage that can provide power at costs comparable to new gas, “it’s only available as an option if you build the grid infrastructure ahead of time,” he said.
McGeady agrees. “It’s the only path forward,” he said of natural gas. “Nobody is willing to not build the next data center because of inability to access renewables.”
But therein lies the difficulty: While natural gas plants are not as transmission-dependent as renewables, some analysts worry that even gas generators won’t be able to respond quickly enough to the increase in demand.
“When we look at the hot spots of Data Center development, in the U.S. and around the world, we see a significant overlap with regions that have favorable policy support for natural gas,” Morgan Stanley analysts wrote in a note to clients. And yet, “there will in our view be a significant shortfall in available U.S. power grid access relative to the magnitude of new data centers needed to ‘absorb’ the AI equipment purchases over the next several years, with the bottleneck becoming apparent in mid-to-late 2025,” the analysts wrote.
The utilities in these areas — places like Georgia, Arizona, and North Carolina — are indeed building new natural gas capacity. In other places where the laws and regulations aren’t as favorable to gas development, however, analysts expect to see more data centers sited at existing power plants. Some of those may be powered by fossil fuels, as in the case of a New Jersey facility recently taken over by the cloud computing company Core Weave, while others may wind up taking zero-carbon power off the grid, as Amazon attempted to do with the Susquehanna nuclear station in Pennsylvania.
Building new natural gas capacity is more difficult in the PJM Interconnection, the country’s largest electricity market, which spans the Eastern Seaboard and a large chunk of the Midwest. Its leadership is hoping high prices can lure new gas generation, but the complexity and uncertainty of the system’s reward structure for companies that agree to supply failsafe capacity has hindered the massive new investment PJM says it needs.
Some clean energy advocates argue that utilities are being short-sighted in their plans to develop new gas resources that could be around for decades — well past corporate, state, or national goals for electric system decarbonization.
“They’re used to building gas plants more so than they’re used to building other things. It reflects a lack of creativity on their part,” Michelle Solomon, a senior policy analyst at Energy Innovation, told me.
But until the system for building and paying for transmission can be reformed to clarify who pays for what and what transmission can be built where — as federal regulators and Congress are trying to do — utilities will likely default to what they know best.
“The difficulty of building transmission certainly can constrain utilities’ ability to serve new load, and it can constrain the ability to serve the load with clean generation,” Gramlich told me.
Chris Seiple, Wood Mackenzie’s vice president of energy transition and power and renewables, echoed Gramlich’s thought in a note from October. “The constraint is not the demand for renewables,” he wrote, “but the ability to get through permitting, interconnection, and building out the transmission system accordingly.”
Seems significant. CGEP
