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Morningstar | Can EVs, Pot, and Data Save U.S. Electricity Demand?

U.S. electricity demand has flatlined during the last decade, but we think it will spring to life. We forecast three emerging electricity demand sources—data centers, electric vehicle charging, and marijuana production—will approach 6% of total U.S. electricity demand by 2030, offsetting energy efficiency gains and resulting in 1.25% total annual electricity demand growth through 2030.

We are reaffirming our fair value estimates and moat ratings for all U.S. utilities. Utilities will have to work hard to attract new demand. We think the most successful will be those that invest in grid expansion, smart networks, reliability, and renewable energy. Utilities that slack on investment could face slowing long-term earnings and dividend growth.

Three utilities that we think will benefit the most based on our electricity demand forecast are Dominion Energy, Duke Energy, and Edison International. All trade near or below our fair value estimates. Dominion and Duke should benefit directly from higher demand in their mid-Atlantic and Southeast locations. Edison should benefit from infrastructure investments to support California's progressive energy policies.

Data center expansion is the largest source of new electricity demand in our forecast. We expect data centers to represent more than 3% of all U.S. electricity use by 2030. We think the Southwest and mid-Atlantic regions will benefit the most from data center growth.

The second-largest source of new demand is electric vehicle charging, which we expect to accelerate in the outer years of our forecast based on Morningstar's bullish EV sales forecast. Third, expanding marijuana legalization and use could quadruple the industry's electricity needs as energy-intensive indoor growing facilities expand.

Energy efficiency will remain a drag on electricity demand, but we expect diminishing returns as high-efficiency lights, appliances, and building codes reach widespread adoption.

For more details on our U.S. electricity demand forecast, download our Utilities Observer report, "EVs, Pot, and Data: Can They Save Electricity Demand?" For more on our electric vehicle sales forecast, download our Electric Vehicle Observer published in September 2018.