Several analysts say one area is becoming a major bottleneck for data center expansion and the energy transition: the power grid. “Under-construction and underinvestment in the grid will hinder the construction of data centers, slow down the energy transition, inhibit the growth of renewable energy, and prolong the use of fossil fuels,” Citi analysts wrote in a report in June. They added that electricity is a “significant bottleneck” in the global expansion of data centers, which require the massive computing power needed for artificial intelligence workloads. Morningstar said in its third-quarter stock market outlook last week: “The grid is the biggest bottleneck for the energy transition. All companies operating the grid have significantly increased investment in the past few months.” Citi added that the grid is critical to the energy transition “Critical” because the areas with the best renewable energy tend to be far away from densely populated areas of high demand. The bank said failure to increase grid capacity would hamper the development of solar and wind power, which would otherwise displace fossil fuel generation. However, “congestion” conditions persist in the United States, with Citi pointing out that wholesale electricity prices have “continued to remain high” in some areas over the past three to five years. That includes New York, California and the Midwest, the report said. Citi said that in Europe, approximately 180 billion euros ($195 million) of investment in high-voltage grids is needed to achieve the EU’s 2030 target of renewable energy accounting for 45% of energy consumption. It has the goal of accelerating the “intelligent transformation” of power grid infrastructure and the construction of smart microgrids. Citi said that in addition to the need for more financing, delays in grid construction were also attributed to a range of other issues, such as challenges from environmental groups, geopolitical risks and long project delivery times. Morningstar said the European utility sector was undervalued and named three stocks: British energy company SSE, French company Veolia and German company RWE. In China, HSBC likes a Chinese stock to tap into grid infrastructure bottlenecks. That is Siyuan, which produces power grid equipment. The bank said: “We believe that its early layout in overseas markets may continue to help it gain market share and have a larger global potential market.” As for the United States, Louis Navellier, a senior investor and founder of Navellier & Associates, said, In a recent report, he said he likes stocks that “help expand the grid and drive the growth of artificial intelligence data centers”: Eaton, Emcor Group and Quanta Services. There is also an exchange-traded fund that tracks the industry: the First Trust Nasdaq Clean Edge Smart Grid Infrastructure UCITS ETF, which tracks stock performance in the grid and electric energy infrastructure industry.
