Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 567

US trip reveals inflection point for $6 billion global industry

Valuations in listed infrastructure haven’t yet responded to higher earnings forecasts or the influx of private suitors for high quality assets in the sector. Seeking answers, portfolio manager Jessica Jouning and analyst Sophie Smith from First Sentier Investors’ global listed infrastructure team hit the road.

In a recent research trip to the US, Jouning and Smith touched ground in eight different states and met fifty infrastructure management teams, regulators and customers from the utility, railroad, waste management, energy midstream and data center sectors. One of the team’s biggest takeaways was that utilities are at a significant turning point on the demand front.

Demand for electricity has inflected up

After decades of flat electricity demand for US utilities, the industry is now seeing unprecedented demand as growth in data centers and artificial intelligence (AI), electrification, onshoring and electric vehicles outweighs energy efficiency gains. One utility executive stated: “Seeing all these customers wanting 24/7 load and willing to pay for it – it is every utility’s dream”.

Demand is expected to accelerate as the AI rollout continues. Employees we met at a data center in Atlanta, Georgia, one of the five epicentres of the current data center boom, highlighted that the pace of leasing demand growth is “astounding”.

All capacity currently under construction (425 megawatts / MW) is already sold out to 2027. In terms of how AI is boosting that demand, they said: “An average customer wants power density of 14-17 kilowatt-hours (kWh3). An AI customer now wants 70 kWh”. Effectively, a five-fold increase.

As data centers (and especially AI-focused data centers) expand their footprint throughout the US, upward pressure on utility load forecasts will continue, owing to the amount of power required for processing and cooling. The following chart from Minneapolis-based electric utility Xcel Energy highlights the extent of this load growth.

Xcel Energy's anticipated load growth from data centers

Source: Xcel Energy. Data as of 19 May 2024.

Data centers account for 4% of total US electric load today. Forecasts expect that to increase by 80-120%, to eventually make up between 6% and 10% of total US electric load by 2030 - with risk to the upside.

As this load demand increases, data center priorities have changed. An executive said: "Data centers used to ask for 24/7 power, clean energy and low prices …now they are just asking for 24/7 power".

A consistent message among utilities at our attendance of the American Gas Association conference in California was that natural gas will continue to play an important role as more renewables come online, coal plants retire and competition for energy intensifies in the face of increased load.

Natural gas represents a reliable source of backup power, especially with increased extreme weather events leading to power outages. It can also play a crucial role in meeting power needs during periods of peak demand.

US electricity generation capacity (GWs)

Source: First Sentier Investors. Data as of 31 May 2024.

Upside risk to current forecasts

As noted earlier, load growth is putting upward pressure on utility load forecasts. This is being reflected in turn in the Integrated Resource Plans (IRPs) being filed by utilities.

In 2022, Georgia Power, a subsidiary of listed electric utility Southern Company, filed an IRP with forecast load growth of less than 400 MW between 2024 and 2031. In their 2023 IRP filing, the forecast load growth for the same period was 6,600 MW (a 17 times greater increase).

These increases then flow through to utilities’ investment plans, ultimately expanding the regulated asset base upon which each utility is allowed to earn a return.

For example, Pennsylvania-based PPL Corp estimated that every new large data center requesting 1 GW of power would require transmission grid upgrades costing at least US$50-150 million. For PPL, every US$125 million spent in this way equates to an additional 1% of EPS. And the growth isn’t all being driven by new-build data centers.

Southern Company’s CFO stated on the company’s Q1 2024 earnings call that energy sales to data centers increased by 12% compared to the prior year; three quarters of this increase came from existing data centers. As today’s conversations with potential data center customers progress through to tomorrow’s signed deals and construction commencements, utilities will see their rate base and earnings growth profiles trend upwards.

We believe that over the next 12 months we will see material uplifts to existing IRPs because of this. First Sentier Investor’s listed infrastructure portfolios are well positioned to benefit, with exposure to electric utilities including NextEra Energy, Southern Company, Dominion Energy, Duke Energy, Xcel Energy, AES Corp, Alliant Energy and Evergy. Our research trip also yielded insights into the US freight and railroad markets, with recovery expectations pushing into 2025 given an uncertain economic backdrop. You can read the full version of our US field notes here.

 

Sophie Smith is an Analyst, and Jessica Jouning a Portfolio Manager with the Global Listed Infrastructure team at First Sentier Investors, a sponsor of Firstlinks. This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs.

For more articles and papers from First Sentier Investors, please click here.

 

RELATED ARTICLES

DigiCo REIT and the data centre opportunity

What AI’s ‘Sputnik moment’ means for data centres

The quiet asset class delivering structural growth

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.