Many dividend investors will have a utility in their portfolio because utilities have limited competition in their area and regulators tend to increase rates on a regular basis which allows for utilities to be profitable and pay dividends. Up until the pandemic, another popular investment was the REIT or Real Estate Investment Trust. After the pandemic, investors have switched from office REITs to apartment and data centre REITs. The data centre REITs are having an effect on utilities.

In an article by Laila Kearney, Seher Dareen, and Deep Kaushik Vakil of Reuters, 9 out of the top 10 electric utilities said data centres were a main source of customer growth, leading to revisions of capital budgets and demand forecasts. Last year only 2 utilities mentioned data centres as a growth.

Utility stocks are down 10% from last year as rising inflation pushed investors to chase higher yields.

According to Morgan Stanley research, data centres will move from 15 terawatt hours (TWh) to 46 TWh.

Surging electricity demand from data centres, along with an increase in US manufacturing and the electrification of sectors of the economy such as transportation was evident in the most recent earnings calls.

Southern Co expects growth to be 6% each year from 2025 to 2028, up from 1%. Sales from Georgia Power jumped 9%.

NextEra Energy of Florida, which is the world’s largest renewable energy company, said it had data centres in its queue to use the same amount of power the state of Minnesota uses.

American Electric Power, base in Ohio says demand grew to 2.5% versus the expected 0.7%. The demand is linked to data centres.

Traditionally, the utility sector is known for slow and steady both for returns and the way the utility is managed and run. Will the utilities react fast enough to meet online demand, asks Rystad Energy analyst Geoff Hebertson.

Linking to dividend paying stocks, we are seeing a change in computing to AI, but the chips to ensure AI works are run on data centres which use lots of electricity, can the utility sector meet the demands? Utility companies are not known for being innovative and nimble, but well-regulated and slow, will demand be met? It is possible, energy conservation is everywhere.

There are more questions than answers, till the next time – to raising questions.