Wind and solar may be temperamental, but other stars are more demanding. Electricity demand is accelerating due to reshoring, electric vehicles and more recently AI data centres. Mark Zuckerberg said that energy, not data and chips, will likely be the bottleneck to the rollout of AI. Growth in data centres alone is expected to add 2% per annum to total global electricity usage2 - equivalent to Japan’s entire consumption.
That energy must come from somewhere, and it must be reliable.
Nuclear is best where it’s available, but where it isn’t, gas is a reliable producer. The world currently builds about 100 large gas plants a year3, and increased demand for data centres could add another 30 to that. This could be good news for Siemens Energy who produces gas turbines, Shell who produces and transports liquified natural gas, and Kinder Morgan who operates the largest natural gas pipeline network in North America.
But energy alone isn’t sufficient. Even when power is adequate, new data centres need to wait to connect to the grid, because the lead time for transformers currently stretches to over two years. That should ensure steady work for leading makers of transformers and substation equipment, like Siemens Energy.
The ongoing changes to our energy system will mean power travelling farther and in more directions. While the energy transition boosts our backstage crew, that’s only part of the story.
When old equipment fails, the consequences can be disastrous leading to wildfires, load shedding and blackouts.
In developed markets, the grid equipment is currently 40 years old on average—older than it was ever designed to operate4. Even without rising demand and intermittency, significant investment in upgrades is needed, boosting budgets for cables, transformers, and switchgear.
With governments and companies likely to invest billions of dollars to clean up and modernise the world’s energy system, the “unsung heroes” behind the curtain are the companies likely to find their work more celebrated. For us as bottom-up investors, that does not look to be reflected in their current share prices.
We can compare their valuations to those of a headliner, like Tesla. To join the show with Tesla, you’ll need to pay up. However, the supporting cast and crew like Siemens Energy, Shell and Prysmian could cost you far less.
While the spotlight almost always focuses on the acts taking centre stage, it’s clear that the cast and crew behind the scenes are just as, if not more important in determining the success of the overall show.
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