How are emerging technologies, such as AI, quantum or accelerate computing, transforming the demand on power infrastructure?
The computational requirements of AI require significantly higher rack density, with more power intensive racks utilized inside the data center shell. The combination of increased rack density and higher power loads per rack continues to drive data center power demand. At the same time, power availability remains constrained, as grid interconnections becomes more challenging to secure and traditional turbines and other forms of critical power equipment remain in short supply.
Driven by surging demand and the escalating power intensity of AI workloads, data centers are now projected to consume between 7% and 12% of total U.S. electricity. Just 7 to 8 years ago, their share was only around 1% to 1.5%, making this a dramatic rise. To support this growth, an estimated additional 250 (TWh) of electricity will be needed to service that power demand.
As demand increases, what areas within the power industry does Hamilton Lane consider attractive in the short and long term?
As power demand increases, all forms of both traditional and renewable generation will be required to support the continued growth. Each form of power generation can have attractive investment attributes depending on the offtake structure and the power markets where they operate. We continue to see opportunities in natural gas fired generation assets, solar, battery storage and upgrading transmission and distribution systems. Some of these new generation and distribution assets are done in partnerships with utilities, while others are contracted directly to hyper-scalers or other corporations in need of power supply when grid connectivity is difficult to secure. The difficulty in securing new grid connectivity also enhances the attractiveness of distributed generation platforms that may provide bespoke, behind the meter power systems to commercial and industrial users.
Longer-term, small scale nuclear reactors and restarting existing nuclear facilities could be viable, although fuel constraints, spent fuel waste treatment and community push back may continue to make nuclear challenging.
You also highlighted the One Big Beautiful Bill Act, which was “a bit conflicting between its policy dynamic and its potential impact on power generation.” As investors digest the new legislation, how should they be thinking about their capital allocations?
I think the administration recognizes that power availability will be critical to its AI policy ambitions. The One Big Beautiful Bill (“OBBB”) removed some forms of federal credits for renewable generation projects but allowed for a phased off ramp for projects that are under construction or starting construction in the near-term. Although these credits play an important role in project economics, they are not the only driver and PPA prices have been rising in response to lower-than-expected federal credits. There is still a strong offtake market for renewables from both utility and corporate offtakers and over 30 U.S. states still have their own renewable energy standards that will continue to advance new installed capacity coming from renewables. The macro backdrop to the US power market remains strong, in that you have a market that is short supply in the face of growing demand. Although policy uncertainty will slow investment, it won’t stop it, as infrastructure capital continues to form up behind this strong macro theme. After the OBBB, the administration also announced its AI policy directive, which is expected to provide Federal incentives for all forms of power generation specifically or synthetically connected to AI data centers. So, although the OBBB was marginally negative to some forms of renewable generation, we could see some of the incentives restored if those projects specifically benefit AI, many of which are expected to.