December 13, 2024 – In today's Big Picture segment of the Financial Sense Newshour, Jim Puplava and Cris Sheridan discuss the increasing strain on the US power grid driven by five converging forces: AI, the cloud, EVs, reshoring of factories, and the energy transition. Electricity demand is rising rapidly, forecasted to grow 16% by 2029, with data centers leading this surge. Jim emphasizes that natural gas is the most viable short-term solution to meet this demand, while modular nuclear power remains five years away. Today, we discuss the key details of this next megatrend and how are we at our firm are investing around it. This is one show you won't want to miss!
Mentioned in today's program: America’s Power Surge: Mark Mills on AI, Data Centers, and Natural Gas
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Transcript
Cris Sheridan:
Welcome, everyone, to today's Big Picture program of the Financial Sense NewsHour. Today, we're going to be speaking with our founder and president of Financial Sense Wealth Management, Jim Puplava. So, Jim, last week, you had a fantastic interview and got a lot of great feedback from our listeners and clients when you spoke with Mark Mills. He is the founder of the National Center for Energy Analytics. You discussed all of the various demands that are going to be coming upon the power grid—the electrical grid here in the U.S. Let’s discuss that today and why you are calling this the next big thing.
Jim Puplava:
Yeah, I mean, when we talked last week, there are five factors that are all converging at the same time on the electrical grid. They are AI, the cloud, EVs, the reshoring of factories back to the U.S., and the energy transition. All five of these megatrends are now in place, and they’re accelerating at rates that we have not seen before. So, we’re going to see large-scale transmission investments that are massively needed to correct the reliability and affordability issues to meet this electrical demand.
Because, you know, it’s just like in California—our utilities are the highest in the country. And what have we seen over the last four or five years? We’ve seen power outages. It used to be constant in California. Now, it’s spreading to other states. We’ve seen them in Texas, we’ve seen them in the Midwest, and we’ve seen them on the East Coast. And we’ll get into why you’re seeing that. But it is now starting to creep up, and it’s going beyond the borders of California.
So, one of the things that we’re going to need is we’re going to have to build the transmission. We’re going to have to build up the load factors that can handle electricity, whether it’s coming from industrial demand, weather, heat, cold, or all these things we’re putting into place. We’re building an infrastructure for charging stations for EVs. We’re bringing back factories—there are over 900 factories that are going up and under construction in the U.S. right now.
One thing we’ve had a problem with up until this time is red tape, regulations, and bureaucratic delays. And that’s hopefully something that Trump’s efforts are going to fix. But, I mean, if you want to take a look at where this country’s gone, coming out of World War II with new appliances going into play with technology, electricity growth was roughly about 9% a year in the 1950s. In the 1960s, with air conditioning and the move to the Southwest, electricity growth was 7.4%.
It was a little under 5% in the 1970s. In the 1980s, it slowed down to 3%. In the 1990s, it went down to 2%. Then finally, at the beginning of the new century, electricity growth dropped to 0.7% and even got down to 0.6%. It stayed there for almost 12 years. Then, beginning in 2022, we began to see an increase. This is when the cloud and data centers really began to take off.
This year, electricity growth is at 3%. And we’re talking about, regardless of what’s going on in the economy, Cris, this is going to be unstoppable. That’s why we’re calling this the next big thing. It doesn’t matter if we’re in a recession. This is not going to stop. We’re not going to stop building factories, building data centers, or building large areas. These data centers will also go hand-in-hand with AI and the cloud. So this, Cris, is a megatrend. And that megatrend isn’t going away—it’s starting to accelerate.
Cris Sheridan:
And as Mark said, when you think about data centers, they are as large, if not larger, than skyscrapers in terms of their square footage. And they demand, I think he said, up to 50 to 100 times more power than a skyscraper. So these are huge, huge energy behemoths.
So given these five sources of demand that we’re discussing—and again, that you went into in-depth with Mark Mills last week—I do want to encourage all of you to listen to that interview if you haven’t already. I will have a link to it where this interview is located on Financial Sense. But given your research into this, Jim, what is the data showing and the level of growth we should expect in terms of demand on the power grid over the next five years?
Jim Puplava:
Well, if we just take a look since 2020, electricity demand has grown from 2.8% to 8.2% over a five-year period. It is expected that over the next five years, electricity demand will grow by almost 16% by 2029.
To put that into perspective, we’re going to go from maybe 23 gigawatts of power in 2022 to 128 gigawatts this year. So you can see the four- or five-fold increase in demand that is coming about with AI, the cloud, and these data centers.
Cris, here’s the other thing—these growth rates may be too conservative. Industry analysts are forecasting growth of, let’s say, 65 gigawatts of power. Utilities, who actually provide the power, are forecasting over 90 gigawatts.
Demand is growing in all major fronts of the economy. The Energy Agency just reported that over 900 new manufacturing projects for transportation and clean energy industries have been announced since the Inflation Reduction Act was passed. Right now, there’s $114 billion in new investment in construction underway.
You’ve heard me mention before, there are three massive chip plants that are going into effect or being built right now and will go online in the next couple of years. In Arizona, Taiwan Semiconductor is building the largest fab chip plant in the world in Phoenix. Intel’s building a plant there. Apple’s building a plant.
What does Phoenix have going for it? It has two nuclear power plants. And that’s bad news for California because we’re buying their excess power, which is going to go away in the next two years. But all of this is coming and adding to load factors.
We’ll get into, when we discuss investments, the implications of all these five converging forces and why it’s creating this megatrend that we’re calling the next big deal.
Cris Sheridan:
So, Jim, as you said, we’re looking at potential growth based on these industry forecasts of 65 gigawatts over the years ahead. Utilities are forecasting up to somewhere as high as 90 gigawatts in growth. And just to put that into perspective, one nuclear plant on average produces about 1 gigawatt. And we’re talking about anywhere from 65 to 90 gigawatts. So, I mean, that just puts these numbers into perspective.
Let’s break it down in terms of where we’re seeing most of this growth and energy demand coming from across the U.S. currently.
Jim Puplava:
If we take a look at the Southwest, Carolinas, Georgia, Kentucky, Tennessee—another area in the Midwest: Illinois, Indiana, Michigan—then we’ve got Pennsylvania and Ohio. Then, of course, on the West Coast, you have Arizona, California, and Nevada.
Most of this is data centers. In Texas, they will need 43 gigawatts of new load demand to handle their data centers. In Georgia, Georgia will need 13 gigawatts of power.
If you’re looking at utilities for investing, the Pennsylvania and Virginia area will need 30 gigawatts. That’s almost as big, the second biggest next to Texas. In the upper region around the Great Lakes, 9 gigawatts will be needed—most of that is coming from manufacturing and, to a lesser extent, data centers.
In the northern part, like North Dakota, Oklahoma, and Missouri, demand is coming from manufacturing. In the Pacific Northwest, it’s data centers, which will require about 7 gigawatts of power.
So it’s dispersed across seven key areas around the country. And that’s one of the areas where we’re investing specifically—utilities in those regions. There’s a reason for that. If you’re going to build a data center, you want to make sure you have access to power.
Most of the internet traffic comes out of Virginia, which is one of the biggest areas on the map in terms of what’s going to be needed in gigawatts. As I mentioned, they’re going to require 30 gigawatts of power in the next four or five years. And Texas will be the number one spot, with 43 gigawatts of power needed.
The main growth is coming from data centers, driven by the cloud and AI. Reshoring and industrialization are also contributing, while EVs will be more significant in the 2030s. The next decade will focus on building out the infrastructure for charging stations.
Just as the country is populated with gas stations, we’re going to have to populate the entire country with EV charging stations. I don’t know what they’re going to do in cold areas in the Midwest and Northeast, where snow affects EV performance and charge retention.
For example, about 40% of the Teslas sold in this country are in California. Cris, I was at a stoplight the other day, and there was a Tesla in front of me, a Tesla to the side of me, and two cars behind me were Teslas.
Cris Sheridan:
As we’re talking about the increasing demand coming again from EVs, data centers, and reshoring—these five different sources that we’re talking about—why do you think this is the next big thing through the back half of this decade? That’s on the demand side. How are we going to power all of these things?
Jim Puplava:
Well, if you take a look at nuclear power down the road—and in particular modular nuclear power plants—I would say, Cris, we’re probably about five years away in terms of regulation.
Now, the good thing about modular nukes is that you can manufacture them like an assembly line. They take between one and two years to build, depending on the size and who’s making them. But, Cris, we’re about five years away from cutting through red tape and putting those into production.
The other issue is that the Nuclear Regulatory Agency has been more focused on retiring nuclear plants. At our peak, we had 112 nuclear power plants. We’re down to 93 right now, and they’ve been a hindrance to the expansion of nuclear power here in the U.S.
If we look at what’s going on globally, this shows how we’ve lost our leadership. China has 55 nuclear plants and 22 new plants under construction—not even counting their coal plants. India has 22 plants in existence and 11 under construction.
The U.S., however, has gone from 112 nuclear plants down to 93, with only one plant under construction. Over the last two decades, China has become the de facto world leader in global nuclear power. The U.S. lost its global dominance starting in the 1980s.
The issue with China is that they don’t have to deal with “banana” greens in government. China can build a new plant in three to five years, whereas in the U.S., it takes 10 to 15 years.
I would say nuclear power is on the drawing board, but we’re about five years away from that. When that comes into existence, Cris, they’re going to be modular nukes because we can’t afford to spend 10 to 15 years building a power plant if we want to maintain our technological lead.
Demand will just overwhelm the grid, and you’d start seeing things shut down.
If you take a look at modular nukes, big tech titans like Bill Gates, Jeff Bezos, and others are backing them. Even Google and Amazon tried to build modular nukes but were turned down by the Nuclear Regulatory Agency.
I suspect that under Trump, that’s going to change dramatically. He understands what we need. Trump is big on bringing manufacturing back to the U.S. To do that, you need electrical power to run those plants.
The key thing that’s going to power this transition is natural gas.
For example, Elon Musk built a data center with 100,000 Nvidia chips. He got that data center up and running in about three months, bringing in two natural gas plants.
So, Cris, we think the transition to nukes will involve natural gas over the next five years. It can be implemented quickly. As I mentioned, Musk did it in three months.
If you want to build a new data center, before even starting on the drawing board, you need to know your power consumption requirements and what’s available locally.
I think we’re going to see more and more natural gas power plants come into existence. We’re very big believers in natural gas right now. It’s the transition fuel. It’s clean, and it gets us to the balance of this decade. Like I said, modular nukes are probably at least five years away.
Cris Sheridan:
So in terms of investments, nuclear power obviously has a future, but that has a much longer time horizon. But you’re saying the only real power source that’s readily available and scalable to meet this surge in demand starting now and over the next five years is natural gas.
Jim Puplava:
Yeah, once again, it’s something that can be implemented and done very quickly. And if we don’t, everything is going to come to a halt. We will lose our technological lead because we want to maintain it in AI and the cloud. We’re the center of that right now. And without a reliable electrical grid and the power to create the electricity that will be needed, this doesn’t work.
Like I mentioned, electricity growth is going to be close to 16% in the next five years. Where is that going to come from? You cannot run a data center on intermittent power that comes from, let’s say, windmills and solar—it’s too unreliable. That’s why natural gas plants are the ones that provide the power for base loads when demand spikes, whether due to weather or things like new factories or data centers.
Cris Sheridan:
So, Jim, as we started off discussing, there are these five key areas that are placing a large amount of demand on the power grid starting now and growing over the next five years. This is the next big thing as you see it. Natural gas is going to be the main beneficiary of meeting that demand. You cited Elon Musk and how he did that for his own data center in a rapid amount of time. Many big tech companies are going to see the success of what Musk did, and they’re going to replicate that as well.
Again, nuclear does have a place, but that is over a much longer time horizon for getting those things built and up and running. So how do you invest along these lines?
Jim Puplava:
Well, one of the things we specialize in at our firm is identifying long-term themes—something we can climb aboard in the early stages and ride that trend until it completes itself.
Whether it was commodities in the 2000s, dividend stocks in the last decade, or cryptocurrencies, AI, and precious metals this decade, we look for these transformative trends.
This is one of our long-term themes, and one of the ways that we’re investing is by focusing on natural gas and natural gas pipelines. A couple of things are going to happen. It’s going to have to be natural gas that powers these centers because nothing else on the drawing board can meet that demand right now. You’re going to need pipelines to transport this natural gas to where it’s needed.
Trump will probably lift the ban on natural gas exports, so we see that picking up. Natural gas itself and the pipelines to deliver power to data centers are a theme we’re investing in.
We’re also looking at select utilities in heavily populated data center regions. There are seven key regions in the country, and we’re focusing on utilities in those areas. These utilities are going to have growth rates that are more like industrial companies because of the demand from these data centers.
Another area we’re investing in is grid infrastructure—companies that will build out the grid and transmission lines. We’re also looking at a couple of companies that are getting ready to bring out modular nuclear plants. But, like I said, that’s probably a few years away.
For example, there’s a company right now that builds nuclear power plants for aircraft carriers and nuclear submarines. There are also a couple of other big companies moving into the modular nuclear area that we’re evaluating.
Additionally, Cris, we’re heavily focused on AI and the cloud. Another big area we see for this decade is robotics. We’ll have more to say about these trends—AI, the cloud, and robotics—next year when we talk about investing.
But these are long-term themes we like to climb on board by buying into the key companies in these areas—those that are the dominant players and the strongest companies. We hold those stocks for the long term and enjoy the ride.
But right now, Cris, this is the next big thing for the balance of this decade.
Cris Sheridan:
Well, as always, today's podcast is brought to you by Financial Sense Wealth Management, named as one of the top investment advisory firms in the US by the Financial Times. If you'd like to come on board and learn more about how we can assist you, give us a call at 888-486-3939.
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Jim Puplava:
In the meantime, on behalf of Cris Sheridan and myself, we'd like to thank you for joining us here on the Financial Sense Newshour. Until we talk again, we hope you have a pleasant weekend.
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