GEOS Insights: The Scream
March 18, 2025
While our inclusion of Edvard Munch’s ‘The Scream’ could be an apt symbol for recent market volatility, the painting is more apropos for our assessments of recent power and electric utility conferences. Data centers and their utilities are screaming for more power. Now. And pricing is irrelevant – power demand from the commercial and industrial sector, primarily data centers is price inelastic currently, and could well remain so for several years. This, after the DeepSeek Sputnik scare a few weeks back, when the market overreacted to a new large language model from the Chinese upstart, which, at first blush was rendered more efficient with processing power – and later disproven in a MIT study. The important take home post several power and renewable conferences is our conviction exhibited by the GEOS power technology theme is warranted, and we believe currently underappreciated by the market after the recent market sell-off.
Today, power markets are tight, driven by surging demand from data centers as electric utilities strive to control increased loads while operating under the added pressures of weather events, labor shortages and strained inputs such as raw materials and transformers. To boot, utility grid investments have been inadequate in most regulated and deregulated markets the past twenty years, resulting in surging power costs. Projections are all over the map on how much power demand will increase the next decade, but we know the increase will be significant. After growing at rates less than that of GDP growth over the past two decades, we believe power demand given concurrent drivers will be at least 4% annualized going forward, and ours is a conservative estimate. Some estimates are as high as 12% annualized growth in domestic power demand. The concurrent drivers are numerous, ranging from increased nationalism driving prospects for onshore industrial development to the cry for data center dominance as a point of global economic and geopolitical differentiation.
Electrification is the modern way forward, and renewables are the only economic solution currently. Just last week, NextEra Energy (current GEOS portfolio holding) CEO John Ketchum stated at CERAWeek that gas fired generation will only be able to meet 16% of domestic energy demand in 2030, given severe equipment supply constraints and a significant increase in the cost of gas turbines over the past few years. Ketchum’s projection has credibility, as NextEra executes an “all of the above” energy development strategy, from gas-fired generation to onshore wind, and solar as well as battery storage and nuclear. To get those British thermal units of energy to power our economy (GDP=BTU), solar+storage is the most economic and the only option that is immediately available. Further, the more we install, the more economic security we have. The benefits start with cost, and end with the dispatchable installation model. For this reason recent orders from data centers have been so-called behind the meter installations.
The major take home of the past week of conferences is solar is a critical source of power for our country’s growing power needs, and will continue to be the leading alternative moving forward, despite the political rhetoric and risks of incentive rollbacks, which we and others negate given the above chart from Our World in Data. Solar is too disruptive and will be complemented by battery storage as well as natural gas peaker and baseload the next decade. GEOS has broad direct and indirect exposure to the trend to modern electrification across the power ecosystem, including electrical grid construction, equipment production, grid monitoring and enhancing, and utility scale solar development. As we assess the current geopolitical, economic, and capital markets states, we believe this trend to be underappreciated with strong and long-tailed fundamentals well intact.
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