I wrote earlier this month about why a real storm is about to hit the world’s power grids.
Investors and businesses spend very little time thinking about electricity. For most businesses and consumers – at least outside of South Africa – it’s as simple as connecting to the network and turning off the lights.
The same has been true of the data center industry for much of its existence, but this is changing rapidly. The Xbox network in California alone already consumes more electricity than entire African countries and things like generative AI will shrink the networks even further.
Here’s a (slightly dated) chart showing the acceleration in electricity demand from tech companies.
Here’s Sam Altman last month:
“We still don’t appreciate the energy requirements of this technology. There is no way to achieve this without a breakthrough. We need fusion, or we need radically cheaper solar and storage or something at scale. »
On Friday, Mark Zuckerberg gave an interview in which he made the same point.
One of the things he points out is the slow pace of energy permitting, including generation and transmission lines. Add to that the difficulties of extracting green metals like copper and lithium and you have a problem. Then we have to take into account the need to limit carbon dioxide emissions and the problem is made worse.
Right now the market is looking to natural gas and coal to meet new demand, but that won’t work in the long term.
Zuckerberg argues that it’s a good idea to invest $10 billion or $100 billion to secure electricity supplies, but he also talks about the uncertainty of how much is needed and why it’s difficult to commit that capital. This hesitation and long implementation delays will lead to an inevitable crisis.
Investing around this theme is tricky. If we are energy constrained, the utilities themselves may have an incentive to achieve this, but they are heavily regulated, meaning the benefits are moderate at best. There are companies making transformers etc. but some have already moved and it is still a relatively small industry.
Natural gas is cheap right now and could ultimately be the beneficiary, although many people would prefer to see demand shift to green energy instead. What’s happening is that places like Texas, where natural gas is abundant, are courting data centers.
I’m sure there are other paths that I haven’t considered, but I think a lot of roads lead to copper because there just isn’t enough supply and the lead times in production of new mines are extraordinary. The risk is that Chinese demand for copper will fall due to a soft economy, creating some room for maneuver. However, risks cut both ways as demand for electricity, electric vehicles and robotics could worsen the supply gap.
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