The artificial intelligence (AI) boom created a wave of investments in AI-ready data centres. Some of the biggest beneficiaries of these AI investments were Nvidia, Broadcom, and Celestica, as they saw a flurry of orders around network switches and servers. All this hardware, once deployed, needs electricity to function. We can only estimate the amount of electricity AI needs, as companies do not report the electricity use of their servers.
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Estimating AI’s growing energy needs
Data centres worldwide consumed an estimated 460 terawatt-hours (TWh) of electricity in 2022, and this is expected to double by 2026, according to an International Energy Agency (IEA) report. When you factor in AI, electricity demand changes. An AI Google search consumes 10 times more electricity than a normal Google search.
Between 2015 and 2019, global data center workloads nearly tripled while energy demand remained relatively stable at about 200 TWh per year thanks to energy-efficient technology. However, training large language models is doubling energy demand every nine months, as per researchers at Epoch AI.
A lot of energy is used for cooling as data centres produce significant heat. Data centres might need independent power plants.
Canada has 239 data centres. Canada’s energy regulator is inviting companies to build their data centre in Canada due to low electricity costs, higher contribution of renewable energy, and a cool climate, which reduces cooling costs.
This is just the beginning of AI’s energy needs. As it proliferates at the edge, autonomous cars, drones, and automated industries will also need more electricity. This could create an opportunity for utility and renewable energy companies to boost electricity production.
Three Canadian stocks tapping AI’s growing energy needs
Canadian Utilities
Canadian Utilities (TSX: CU) is one of Canada’s largest utility companies, engaged in electricity production and distribution and natural gas distribution. ATCO EnPower has an end-to-end energy infrastructure to serve data centre customers in Alberta.
It has allocated a $5.8 billion capital expenditure to build transmission infrastructure over the next three years. The new transmission pipelines will increase the coverage and bring in higher billing.
Canadian Utilities grows its earnings and cash flows by increasing the rate base. It expects the rate base to grow at a compounded annual growth rate (CAGR) of 5.4% in the next three years. The company has +50 years of history of paying regular dividends and growing them by 1% annually.
Emera stock
Emera (TSX: EMA) is a rate-based utility covering Florida and Atlantic Canada, where there is high population growth. It operates six utilities. It has allocated $20 billion in capital expenditures over the next five years to grow its rate base by 7-8% CAGR.
The company has been growing its dividends for the past 18 years and targets to grow it by 1-2% for the next five years. This growth can be achieved with disciplined capital allocation and an 80% payout of funds from operations. Emera can help you benefit from the energy needs of AI at the edge.
Capital Power stock
Capital Power (TSX: CPX) is an independent power producer involved in the acquisition, development, and operation of power-generation facilities. Its operations are in Canada and the United States. The company is looking to tap the energy needs of data centres in the United States.
It has been paying regular dividends for the last 16 years and growing them at an average annual rate of 6.8% in the last 11 years.
The upcoming data centre energy needs could be a significant growth driver and help Capital Power grow its dividends in the coming years.
