Key Takeaways

• Additive contributors collide with global population growth along and desire for higher living standards to provide added catalysts for increased demand for power.

1. Increased push for electric vehicles.
2. Artificial Intelligence requirements
3. Construction of new manufacturing, industrial, and data center facilities.

• While electricity is at the forefront of increasing demand, additional power generation will also become impacted by a rise in demand due to:

1. Increased electricity production and the sources powering those plants.
2. Search for alternative power solutions to combat rising electric rates and electricity supply.

• Our Industrial Power Renaissance theme has been added to our Strategas Macro Thematic Opportunities ETF (SAMT) as we position the portfolio in accordance with this drive for power generation and its add-on effects.

In-depth

As we approach the mid-way point of 2024, numerous forces have provided a catalyst for the increased demand for power.  The U.S. Energy Information Administration (EIA) noted last fall that global population growth and higher living standards have contributed to the increased growth rates for energy consumption since 1950.  However, while we believe population growth and an increase of living standards will continue to provide upward pressure on energy consumption, we also are in the mindset taht we are amidst an additional acceleration in demand due to the following:

1. Increased push for electric vehicles.
2. Artificial Intelligence requirements.
3. Construction of new manufacturing, industrial, and data center facilities.

1. Push for electric vehicles (EVs)

For all the carbon emission benefits associated with electric vehicles, the push for a full transition away from traditional vehicles does not come without additional costs.  Aside from the vast amounts of metals like lithium, cobalt, and nickel electric vehicles require, a secondary byproduct of EVs is the increased demand impact for electricity to run the vehicles.  A recent study by the Rapid Energy Policy Evaluation and Analysis Toolkit projected that EVs will drive electricity demand up by 18% by 2030 and by 35% by 2035, paling in comparison to its approximate 5% increase over the past decade.  With consumption already accelerating higher, the quicker rate of change could add strain to already aging power grids.

Source: US Energy Information Administration as of May 20, 2024

2. Artificial Intelligence Requirements

With artificial intelligence (AI) becoming a focal point of almost every company regardless of the sector they are listed under, what is lost is how much additional power is needed to utilize AI for things as complicated as imaging for cancer detection to simplistic Google searches.  While the exact amount of increase may be debatable, what appears to be accepted is that those “simplistic” AI powered searches, such as ChatGPT, require exponentially more energy at each stage in its development. 

Electricity consumption per request

Source: US Energy Information Administration as of May 20, 2024

To put this in perspective, the Gartner Group estimates that AI will make up as much as 3.5% of global electricity demand by 2030, roughly the equivalent of twice the energy consumption of France.  What’s more, AI usage has driven the increased demand for data and, thus, data centers.  And lost in the need for data centers is the tremendous amount of power need for those data centers- be it for computational usage or additional resources for temperature control.  To be fair, with AI seemingly just scratching the surface on its utilization, those numbers could end up being significantly lower than the current figures suggest.  

3. Construction of new manufacturing, industrial, and data center facilities

As the demand for data center facilities rises, so does the necessary industrial components to maintain those facilities and thus, the plants required to produce those components.  In addition, numerous EV and EV component plants are still under construction.  We believe we are witnessing a surge in manufacturing construction in part due to the increase in data center and EV component plants along with those companies who are near-shoring operations - which we believe is due, in part, to De-Globalization.  While the construction of manufacturing facilities provides its own increase in power demand, we also note the projected power necessary to run these facilities once they come online. 

Data as of June 6, 2024

Sources of Power / Thematic Investment

Finally, while electricity is at the forefront of increasing demand, additional power generation sources will also become impacted by a rise in demand due to:

• Increasing electricity production driving up the demand for those resources producing electricity.
• The search for alternative power solutions to combat rising electric rates and potential electricity supply shortages.

Annual Net Electricity Generation Per Source

Source: US Energy Information Administration as of December 31, 2023

With the demand for electricity rising, the focus appears to be shifting away from a pure focus of renewable energy – from NJ recently exploring extending the life of 3 power plants to Energy Secretary Jennifer Granholm acknowledging the U.S. may need to revive shut nuclear plants.   With implications becoming clear that power generation will need to come from more than just an increase in electricity supply, we have added our Industrial Power Renaissance theme to the Strategas Macro Thematic Opportunities ETF (SAMT).  We believe companies either directly or indirectly assisting in providing for the increased demand in power will be beneficiaries regardless of the type of energy being supplied.