Electrification expected to supercharge investment opportunities

Artificial intelligence, electric cars, industrial trends and the transition to green energy will create unparalleled demand for electrical power, says Morten Springborg, global thematic specialist at C WorldWide Asset Management.

Springborg said opportunities will present themselves to those who invest in the build-out of the global electrical grid.

“The uncertainties about how big this is going to be are huge, but we are definitely going to need a lot more electricity,” he said.

He described grid upgrades as a “super-theme” that supports other subthemes, such as the growing demand for electric cars, a supply chain reshoring trend in the U.S., the move to higher-consumption electric heating over traditional heat pumps, and a rising reliance on electrical power in industrial settings.

Above all, he said, artificial intelligence (AI) could be one of the biggest drivers of the electrification theme.

Beyond the first-order beneficiaries from AI technology like chip designers and manufacturers, there are a handful of so-called hyperscalers like Amazon Web Services (AWS), Alphabet Inc. and Microsoft Corp. that will require tremendous amounts of electricity to bring to life their visions of data mining, productivity enhancement, humanoid robots and industrial automation.

Analysts have estimated that by the end of the decade, generative AI could consume up to 10% of U.S. electricity.

Until last year, electricity consumption in the U.S. was flat for decades, Springborg said.

Globally, electricity is expected to constitute 40% of all energy consumed by 2050. That would be up dramatically from the current 20%.

“It is all part of the energy transition,” he said. “We electrify as much as possible because it is much more efficient, energy wise. And that means that all businesses that are exposed to the electrical grid will need to ramp up investments.”

Indeed, access to sufficient, reliable power is so important that several global corporations, including Microsoft and AWS, have announced plans to purchase or build their own nuclear power generating plants.

“The grids that we operate globally today were basically built out in the years after World War Two,” he said. “For the last 30 years, we have been talking about the need for upgrades of the electrical grid and nothing has happened.”

Springborg said over the last two or three years, companies exposed to the build-out of grids have seen “an explosion in their order books.”

“We’re talking cabling, we’re talking about transformer stations, substations, etc.,” he said. “If you go out now and order a transformer station, you’re going to wait two or three years before you can get it. If you want to have subsea cabling for a wind farm, it’s going to take you between five and 10 years before you have it.”

This constraint could slow the deployment of AI, he added.

As an interim solution — before the creation of a more robust electrical grid or private nuclear power stations — he expects a revival in natural gas power stations.

“Natural gas is much better than coal. It’s approximately half as polluting — CO2 wise — as natural gas,” he said.

More to the point, the biggest energy consumers must solve the immediate problem of unstable electrical grids.

“The quickest way you can do that today is actually to build new natural gas-powered stations,” he said. “I can see that becoming a stronger thematic subtheme of electrification in the years ahead.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.