AI boom takes over the electricity market: Demand expected to double soon

Despite calls to decarbonize the global economy, demand for electricity keeps growing worldwide in no small part due to the ballooning numbers of data centers, Artificial Intelligence services, cryptocurrencies, electric vehicles (EVs), and cooling systems.

The IEA's analysis shows that in 2022, energy needs of data centers were in the range of 240 to 340 terawatt-hours (TWh), accounting for 1% to 1.3% of global consumption. If networking infrastructure and crypto mining were to be included, the figure would be as high as 460 TWh representing around 2% of the world's total.

In the coming years, the demand is expected to continue growing.

We expect global electricity consumption for data centers, cryptocurrencies, and artificial intelligence to range between 620 and 1,050 TWh in 2026, with our base case for demand at just over 800 TWh

This means the current values are slated to more than double in the next two years. By 2030, data centers alone could contribute to 10% of the total demand growth.

The analysis also highlights technological advancements that have led to substantial efficiency gains such as Nvidia's recent GPUs. However, these improvements may not fully offset the rising energy demands. Technological advancements could affect energy market developments heavily.

It is worth noting that the global supply chain for components critical to the industries mentioned above, particularly AI chips, isn't diversified enough which could have a significant negative impact on the growth. The Taiwan Semiconductor Manufacturing Company (TSMC) which dominates the AI chip market with over a 90% share is slowly expanding its manufacturing capabilities, but it might take the company's new plants up to 5 years to become fully operational.