The world is set to enter the “Age of Electricity,” as demand has grown more quickly than any other energy source and is set to accelerate even more, according to the International Energy Agency’s (IEA) recently issued World Energy Outlook.
Fatih Birol, the IEA executive director, said, “In energy history, we’ve witnessed the Age of Coal and the Age of Oil – and we’re now moving at speed into the Age of Electricity, which will define the global energy system going forward.”
Here are some highlights of the report:
- Between 2010 and 2023, electricity demand grew 2.7% annually, while overall energy demand rose 1.4%.
- In the next 10 years, electricity demand will grow at a rate of 3% a year – six times faster than overall energy demand.
- Between 2023 and 2035, the world electricity demand will increase by 2,200 terawatt-hours (TWh), a 6% increase overall. That's the equivalent of adding Japan’s annual electricity demand to grids each year.
The IEA said the growth is being driven by the shift in industry and transport to electric power, increased demand for cooling, and the proliferation of data centers needed for artificial intelligence (AI).
Climate change is also a factor, as the combination of rising incomes and increasing global temperatures will generate more than 1,200 TWh of extra global demand for cooling by 2035. For example, in India, air-conditioning sales doubled after a series of brutal heat waves this year.
The power demand story is similar here in the United States…
U.S. Electricity Demand
Here in the U.S., in the 2010s, the economy expanded by 24%, yet electricity demand remained steady. That's about to change, and “the U.S. electric utility industry has been caught flat-footed,” according to the energy consultancy Wood Mackenzie.
Its recent report projects a yearly increase in electric demand from 4% to as much as 15% in some regions by 2029 – equal to a total of 25 gigawatts (GW) of capacity.
The main driver is data centers, with Wood Mackenzie identifying 51 GW of new data center capacity announced just since January 2023. The U.S. is already home to about 5,000 data centers - a third of the world’s total.
According to the IEA, AI-focused data centers used 4% of generated electricity two years ago. That’s projected to hit 6% in 2026 – and as much as 12% by the end of the decade, says investment bank Barclays' analysts. In fact, we could see $1 trillion worth of data centers built in just the next five years!
These data centers will be competing with a growing industrial sector, such as semiconductors, which are projected to add another 15 GW of demand. Shifting activities, such as heating and transportation to electricity, could add another 7 GW of demand.
Needless to say, this will be a major challenge.
Chris Seiple, vice chairman of power and renewables with Wood Mackenzie, said in a statement: “In most industries, demand growth of 2% to 3% per year would be easily managed and welcomed. In the power sector, however, new infrastructure planning takes five to 10 years, and the industry is only now starting to plan for growth.”
He added that “the last time the U.S. electricity industry saw unexpected new demand growth like this was during World War II.”
Between 1939 and 1944, manufacturing output tripled, and electricity demand rose 60%. So we have a “power problem” here in America. And it’s a problem without a simple solution.
GE Vernova
In addition to the data center build-out, America has an aging power grid – one not set up for the rigors of this new demand, and certainly not one ready to handle the rigors of more frequent extreme weather events.
Add it all up, and these are almost ideal conditions for one company: GE Vernova (GEV).
Formerly part of General Electric, the company is a global leader in the electric power industry, with products and services that generate, transfer, control, convert, and store electricity. It designs, manufactures, delivers, and services technologies to create a more reliable and sustainable electric power system, enabling electrification and decarbonization. Vernova's installed base generates approximately 30% of the world's electricity.
It’s easy to see why Raymond James Managing Director Pavel Molchanov describes the company as a power industry "supermarket."
GE Vernova's power segment consists mainly of its gas power business. It has a long history in gas turbines and has the largest installed fleet of gas turbines globally. The company’s electrification segment consists of grid equipment, including power conversion, switchgear, transformers, and grid automation offerings.
Its third-quarter earnings showed strong order growth for gas power and electrification, partially offset by additional costs associated with its offshore wind backlog.
This year is poised to mark an inflection point in gas power orders, with HA-turbine orders reaching 21 units year-to-date, compared with eight in 2023. Management expects gas power orders to increase slightly year on year in 2025. These turbines were designed to reduce carbon emissions and support today's flexible power generation needs.
The company’s electrification orders increased 17% year on year in the quarter, as demand for switchgear and transformers remained robust. This segment’s EBITDA margins reached 10.4% in the quarter, with further expansion to come in 2025.
GE Vernova’s robust orders give a strong indication of continued revenue growth and profit margin expansion. Overall EBITDA margins should expand from under 6% in 2024 to over 13% in 2028 as GE Vernova realizes its higher-margin backlog.
Right now, earnings are projected to grow at an average annual rate of 21% over the next five years. That means earnings would double in about 3.5 years. And, all else being equal, as share prices tend to follow earnings, you get some idea of the magnitude of what GEV offers investors.
That said, the stock was trading at about $140 back in April — meaning it’s more than doubled in a very short stretch. Even so, GEV stock is a buy on any meaningful pullback in price, and can be bought anywhere below $307.
