The big demand for AI is creating big demand for energy, one that could put a strain on the US energy grid.

Canaccord Genuity Managing Director George Gianarikas recently wrote in a note "We are set to hit energy bottlenecks as it relates to AI deployment. Either data center build-outs and (likely) GPU consumption have to slow — or the deployment of energy resources that will power them has to accelerate in a big way."

Gianarikas says there are plans to add energy capacity through solar and, longer-term, nuclear, mentioning NuScale (SMR) as a potential beneficiary. Gianarikas also thinks companies like Ameresco (AMRC) and Fluence Energy (FLNC) could benefit from higher energy demand. He also highlights Generac (GNRC) in case increased power outages spur more demand for generators.

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This post was written by Stephanie Mikulich.

Video Transcript

Well, electrical grids across the country are feeling the pressure from the A I boom.

Our next guest says something's gotta give for more.

Bring in George Generica managing director at Canon Court ingenuity.

Thanks so much for being here, George.

Um This is something we've been talking about a lot, right?

This huge demand for A I, the huge demand for power that comes along with it.

But of course, there's also a lot of talk about grid security, sort of around the country and resiliency and whether it's going to be able to keep up with this.

So where are the sort of the pain points in your view?

Well, thanks for having me on.

So we wrote a note last week that was inspired by a report from CT, which is the Electric Reliability Council of Texas.

It's the organization that operates their electric grid down there.

Uh And like your other guests, probably we've written a lot about the potential for a ID centers to tax the energy grid.

But we, what we appreciate about the study from Ercot is it's one of the few that we've actually seen that in a granular way tries to quantify what the impact could look like.

You know, the study was inspired by a bill in the Texas legislature that demanded ercot analyze the impact of things like data centers on grid reliability.

As a winter storm in 2021 significantly impacted the grid and resulted in deaths and what the study found that was starting in 2028 2029 2030 in both the winter and summer, the curve margins, which is this buffer that they try to create to make sure that they can handle peak loads would turn negative.

And that is clearly not something that they want to do.

So either they have to add significant energy en energy generating assets to the grid or the demand for all this A I related hardware that people are buying has the down and like we say in our notes, something's got to give there.

Well, it doesn't seem like the latter thing is gonna happen necessarily, right?

At least not in the short term.

Are there any plans though in the works?

I mean, you know, I feel like for years now we've been talking about R CT, we've been talking about the grid problems in Texas specifically because of heat waves because of other winter storms as well, winter weather.

So is anything, is anything giving on that side?

So there are plans to add significant energy generating assets, whether it's solar, whether it's stuff and with battery technology and even longer term.

And we're very bullish on the potential for nuclear technology, particularly small modular reactors that help create baseload clean energy across the country.

And we cover a company called new scale ticker symbol smr that hopefully over the next, you know, several years, we start to win uh some uh some contracts to build out the energy infrastructure in the United States for data centers and, and it seems like regional, this is really a regional issue.

We talked to another um analyst yesterday who covers the utility industry.

And she kind of said, well, it depends on where you're talking about.

Maybe in a place like Texas, you would have an issue, but there is sort of ample capacity in other places.

I guess the question is whether data center operators are gonna try to locate in those places that do have more capacity?

Yeah, that, that's a very fair point.

I mean, in Texas that there's a lot of cheap green energy.

So companies are putting their data centers there, you know, traditional parts in the mid Atlantic, you know, we know some places in Ohio.

So yes, it's, it's kind of geography specific.

But ultimately, you know, if you the more data centers you add, the more EVs you add to the grid, it will begin to tax it.

And I thought this particular study was alarming just because you get to these this potential negative reserve margin scenario that's very, very dangerous for, for their grid and for the country.

And so, you know, and like I said, you know, there are, we, we followed up that note that we wrote with the, uh basically, uh calling out some posts yesterday or two days ago from Elon Musk and someone else who went back and forth on X that basically said these companies are buying so much of this A I related hardware.

They don't know where to put it, you know, and that's sort of creating an issue there too.

So it's not just having to put the energy generating assets in the ground.

It's also finding a where where to put all this A I related hardware that, that they're buying.

And so there seems like there's this potential for an air pocket as all these ambitious plans to create, you know, A I data centers meet the realities on the ground of building data centers, buying energy generating assets, getting permits, finding labor.

This is all the real world stuff that might slow down the uh the A I related stuff, right?

And not to mention maybe have an effect on our electricity bills as well, potentially, even though it is regulated industry, you know, we've already seen that kind of an increase.

So George, as you mentioned, you kind of look at it as well through the prism of who could benefit from all of this, not just like where is it gonna create bottlenecks as you were just discussing you talked about one idea, one company that might be poised to benefit, are there other sort of, you know, grid resiliency operators or alternative power operators that you're looking to here?

Certainly, you know, we cover a company called a Maresco, uh that basically a clean tech integrator that should benefit, you know, uh although they're not quite seeing demand from data centers yet that we're seeing some early signs from that same thing for a company we cover called fluence that hasn't really seen yet that, that data center demand, but they're starting to see the inklings of it.

And also if you want to buy a generator for your home to make sure that it's uh it's safe for any issues with the grid.

You buy Genack, GNRC.

Uh They make the generators that basically serve as backup power for residences and for, you know, for some uh commercial industrial applications as well.

George, good to catch up with you.

I look forward to something's got to give part three maybe.

Uh The next note, next update on this.

This is definitely a topic that's not going away.

So we'll keep talking about it.

Thanks for having me.