Feeding the Beast: AI’s Energy Demand May Double by 2026

What’s New: Global electricity demand, which saw a moderate increase in 2023, is expected to rise more sharply through 2026, driven by emerging economies and, reportedly, will be met entirely by clean energy, according to a new study by the International Energy Agency.

“Global electricity demand is expected to rise at a faster rate over the next three years, growing by an average of 3.4% annually through 2026.”

Why This Matters: The intersection of rising electricity demand and the pivot towards clean energy sources underscores a pivotal era for both the global energy landscape and technological advancement. With data centers, artificial intelligence, and cryptocurrency mining poised to significantly contribute to this demand, the importance of energy efficiency and renewable energy sources becomes ever more critical. This shift not only impacts the environment and energy markets but also influences geopolitical, economic, and technological paradigms.

Key Points:

• Demand Growth: Emerging and developing economies are spearheading the global surge in electricity demand, with China and India being primary contributors. This growth is further fueled by the expanding needs of data centers, artificial intelligence (AI), and cryptocurrency mining, illustrating a significant shift in global energy consumption patterns.
• Data Centers and AI’s Energy Appetite: The global electricity demand from data centers, AI, and the cryptocurrency sector could potentially double by 2026. After consuming an estimated 460 terawatt-hours (TWh) in 2022, data centers’ total electricity consumption is projected to surpass 1,000 TWh in just two years, equating to the annual electricity consumption of Japan.
• Emerging Economies’ Role: Approximately 85% of the additional electricity demand through 2026 is expected to originate from outside advanced economies, with a considerable share stemming from China and India. In 2023, China’s electricity demand rose by 6.4%, driven by the services and industrial sectors, while India’s demand increased by 7%, supported by strong economic activity and expanding ownership of air conditioners.
• Economic and Technological Impacts: In Europe, high energy costs have severely impacted energy-intensive industries, leading to decreased production and an uptick in imports of energy-intensive goods. The chemical and primary metal industries, notably, have faced production curtailments and shutdowns, contributing to a loss of nearly 23 TWh of annual electricity demand in these sectors, demonstrating the intricate link between energy prices, industrial competitiveness, and economic sustainability.
• Importation of Energy-Intensive Goods: The European Union has seen an increase in the importation of energy-intensive goods as a result of high domestic energy prices, effectively importing electricity indirectly. In 2022, over 160 TWh of electricity—equivalent to 6% of EU’s electricity demand—was imported in the form of chemicals, primary Aluminium, crude steel, paper pulp, and cement, underscoring the global interdependencies of energy consumption and industrial production.

What I’m Thinking:

• Strategic Implications for Business and Government: Leaders in business and government must navigate the dual challenges of ensuring energy security and advancing decarbonization goals. Investments in renewable energy infrastructure, efficiency improvements in technology, and policies supporting the clean energy transition are imperative.
• Economic Competitiveness and Innovation: The competitiveness of energy-intensive industries, particularly in regions like the European Union, hinges on the ability to manage energy costs and embrace innovative energy solutions. This scenario underscores the importance of strategic planning, investment in innovative energy technologies, and regulatory frameworks that support these innovations and overall competitiveness.
• Technological Advancements and Energy Efficiency: The projected increase in electricity demand from data centers, AI, and cryptocurrencies highlights the critical need for advancements in energy efficiency and the development of sustainable computing technologies. This trend offers opportunities for innovation in energy-efficient computing, renewable energy integration, and the development of new business models emphasizing sustainability.