AI Needs More Power Supply to Drive Economic Growth
he power-hungry technology requires policies to help expand electricity supplies, incentivise alternative sources, and help contain price surges. Artificial intelligence (AI) is an emerging source of productivity and economic growth that’s also reshaping employment and investment. AI has the potential to raise the average pace of annual global economic growth, according to scenarios in our recent analysis, included in the IMF’s April 2025 World Economic Outlook.
AI, however, requires increasing amounts of electricity for the data centres that make it possible. The resulting strain on power grids has major implications for global electricity demand.
According to the most recent full-year estimate by the Organisation of the Petroleum Exporting Countries, the world’s data centres consumed as much as 500 terawatt-hours of electricity in 2023. That total, which was more than double the annual levels from 2015-19, could triple to 1,500 terawatt-hours by 2030, OPEC projects.
As the Chart of the Week shows, the electricity used by data centres alone, already as much as that of Germany or France, would be comparable to that of India, the third-largest electricity user in the world, by 2030. This would also leapfrog the projected consumption by electric vehicles, which would use 1.5 times as much power as EVs by the decade’s end.
Data centre energy consumption is growing fastest in the United States, home to the world’s largest concentration of centres. Power needed for US server farms is likely to more than triple, exceeding 600 terawatt-hours by 2030, according to a medium-demand scenario projection by McKinsey & Co.
The boom in building new warehouses for data stored in the cloud and answering AI queries underscores the urgency for policymakers, who need effective energy strategies to ensure adequate supplies can meet surging demands.
Increasing electricity demand from the technology sector will stimulate overall supply, which, if responsive enough, will lead to only a slight increase in power prices. More sluggish supply responses, however, will spur much steeper cost increases that hurt consumers and businesses and possibly curb the growth of the AI industry itself.
Under current energy policies, the AI-driven rise in electricity demand could add 1.7 gigatons in global greenhouse gas emissions between 2025 and 2030, about as much as Italy’s energy-related emissions over five years.
Demand for computing and electricity from AI platforms is subject to wide uncertainty. Efficient, open-source AI models like DeepSeek lower computing costs and electricity demand. However, reduced costs increase AI usage, and more energy-intensive reasoning models raise electricity demand.
The net effect on electricity demand is still uncertain, which may delay energy investments and raise prices. Policymakers and businesses must work together to ensure AI achieves its full potential while minimising costs. Implementing policies that incentivise multiple energy sources can enhance electricity supply, help mitigate price surges, and contain emissions.
Source: Proshare.co
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