Renewable energy sources are playing a larger role in global electricity generation, reaching a record percentage. Wind and solar installations are also growing at unprecedented rates. However, the lack of power grids to support this growth means that a significant portion of this clean electricity may go to waste. The surge in power demand driven by AI-related sectors could accelerate the development of transmission networks worldwide, benefiting key suppliers.
According to the International Energy Agency, nearly 3,700 gigawatts of new renewable capacity is expected to come online over the next five years. In Asia, companies are investing heavily in power grid infrastructure to meet this new capacity as AI-related sectors offer promising returns.
Operating and training generative AI services requires substantial energy consumption. Studies suggest that generative AI systems use about 33 times more energy than machines running task-specific software.
Justifying investments in grid expansion has become easier due to the near-guaranteed demand from AI-related industries. Tokyo Electric Power Company Holdings, Japan’s largest electric utility company, plans to spend over $3 billion on its transmission infrastructure by 2027 through its subsidiary Tepco Power Grid — tripling its investment level.
This year, Tokyo Electric Power Company launched a large-scale substation for the first time in more than two decades in Inzai, Chiba prefecture. This coincides with the construction of several data centers in the area by Google and Japanese IT group NEC.
Conglomerate Hitachi is one of the beneficiaries of these investments in power transmission and distribution networks. Its power grids business manufactures hardware for electrical grids and load-dispatching systems. Recent earnings already reflect growing demand for power transmission solutions with group net profit doubling to $1.2 billion for the June quarter.
Shares of Hitachi have risen 80% this year and trade at 26 times forward earnings — triple their levels from two years ago. In the US alone, there was a 30% increase in grid connection backlog last year as renewable energy capacity continues to grow.
As renewable energy capacity expands further, sectors such as grid integration and energy storage solutions will become increasingly lucrative.
