Why Utilities Should Benefit from the Rising Global Demand for Electricity

The global demand for electricity has been projected to surge substantially in the coming years, outpacing past trends. We believe this surge presents significant opportunities for companies dedicated to addressing the rising need for power.

Many growth investors often overlook utility companies, but we see compelling opportunities in this sector. Our investment approach emphasizes the direction of a company’s growth rather than merely focusing on high absolute growth levels.

For example, while a utility company might lack the eye-popping profit growth of an artificial intelligence (AI) chipmaker, we would be drawn to a power company experiencing accelerating earnings growth. Our interest would be even greater if a trend like higher electricity demand supported this growth.

According to the International Energy Agency (IEA), global demand rose by 4.4% in 2024 and is expected to grow by 3.3% this year and 3.7% in 2026.¹ This represents a noticeable jump compared to the period from 2015 to 2023, when demand grew at an average rate of 2.6% per year.

Looking out further, the management consulting firm McKinsey projects electricity demand in the U.S. alone could climb more than 3% annually through 2040.²

Emerging and developing markets are generating much of the increase in global demand, with China leading the way.³ However, demand is also ticking upward in advanced economies.

To better understand the trend, let’s examine the root drivers and efforts aimed at meeting this growing need.

What’s Creating the Higher Global Demand for Electricity?

Data Center Growth and Energy Consumption

AI, cloud computing and digitalization are generally driving the construction of more data centers, particularly in the U.S. According to real estate services firm JLL, data center capacity may grow 15% per year through 2027.⁴

The IEA estimates that data centers will more than double their electricity consumption by 2030.⁵ One reason is that graphic processing units (GPUs), the semiconductors used in AI, consume significantly more power than other chips.

Greater Demand from Industrial Users

Technologies powering the future — semiconductors, rechargeable batteries, solar photovoltaic cells — require more electricity because of how they’re made.

Moreover, economic growth in developing and emerging economies is fueling more demand from industrial users. In China, for instance, industrial use was responsible for about 50% of the rise in electrical demand from 2022 to 2024.⁶

Higher Levels of Electrification

The availability of electricity continues to expand around the globe. In 2023, the World Bank reported that access to electricity reached 92% of the world population, compared to 83% in 2010.⁷ This is in addition to the burgeoning use of electric vehicles, heat pumps and similar technology.

How Can the World Meet Higher Demand for Electricity?

Renewable Energy

Renewables — solar, wind and hydropower — could help meet the need for more electricity as their output grows.

Solar and wind power could account for 17% of global electricity generation this year and 19% in 2026.⁸ About a decade ago, they represented only about 4% of production.

Although hydropower is the largest renewable energy source, the IEA forecasts that its growth will stay flat in 2025.⁹ However, it may experience 2% growth next year.

At the same time, renewables face challenges like outages caused by low winds or insufficient sunlight. In the U.S., the White House has also expressed resistance to approving new wind and solar projects.¹⁰

A sizable backlog of renewable projects is also waiting to be connected to the power grid. It’s a good problem to have, but a problem nevertheless.

Natural Gas

While renewables gain ground, gas-fired power plants could generate 1.3% more power this year.¹¹ In particular, the Middle East is seeing higher demand due to higher electricity use and plants switching from oil to gas as energy sources.

Natural gas remains an integral part of the energy mix because it can provide power during periods of low sunlight or wind, a potential problem for renewable sources.

Nuclear Power

The IEA expects a new record in nuclear power generation this year, with output rising an average of 2% over 2025 and 2026.¹²

Supply is poised to keep growing in the coming years, with more than 60 reactors under construction worldwide.¹³ The International Atomic Energy Agency reports that China has about 29 in progress, while India, South Korea and other countries are also building them.¹⁴

Nuclear power offers the advantage of producing low carbon emissions, making it beneficial for countries aiming to achieve their energy transition goals. Unlike renewable energy sources, nuclear power is also more resilient to outages.

However, one drawback of nuclear energy is its susceptibility to negative pricing, which happens when there is an oversupply of electricity. This situation essentially leads utilities to pay customers to use the excess power.

Energy Efficiency

Improving energy efficiency is critical for meeting higher electricity demand. Since 2009, energy demand has stayed flat or declined in advanced economies, partly because of efficiency improvements in lighting and appliances.¹⁵ Efforts to relocate or restructure heavy industries also contributed.

Meanwhile, data centers are focused on using better and more efficient cooling systems to help ensure optimal performance and prevent shutdowns. Depending on the data center, cooling can account for 7% to 30% of a facility’s electricity consumption.¹⁶

What Sectors Will Likely Benefit from Growing Electricity Demand?

The increasing demand for electricity may present opportunities to diversify by capitalizing on a global growth driver. We believe this trend will likely be sustainable and could remain strong, even if the world economy slows down.

Several sectors may benefit from this trend, including:

• Utilities: Companies like CenterPoint Energy are seeing boosted demand due to rapid population growth in Sun Belt cities like Houston, Texas. Dominion Energy is benefiting from Virginia's leadership in the data center industry.

• Construction: These are businesses involved in the buildout of power plants and energy infrastructure, such as AtkinsRealis, a provider of engineering and professional consulting services.

• Industrial machinery manufacturing: Companies like Siemens Energy and Mitsubishi Heavy Industries make turbines that convert gas into electrical energy.

• Natural gas: Firms such as The Williams Cos., an operator of natural gas infrastructure, could see a tailwind as natural gas becomes a more prevalent source of energy generation.

• Efficient cooling technology: Businesses like Modine Manufacturing Co. are well-positioned to benefit from the mounting need for thermal management solutions that enhance energy efficiency and reliability in data centers and various other industries.

We believe our investment philosophy helps lead us to opportunities like these. Using fundamental-focused analysis, we seek companies in various sectors with accelerating and improving earnings growth, driven by organic growth drivers.

In this case, we think the increasing demand for electricity will likely catalyze growth across multiple sectors and regions.