#Slice of Pie
#Slice of Pie
6/10/2024 12:00:00 AM
#slice of pie

A Message from Mike: Power Crisis

Founder and Chief Investment Officer Mike Taylor explores reflects on the power crisis, a concern for us all as winter arrives.

We have all been made acutely aware recently of the power shortage in New Zealand when an unseasonably cold May left many consumers with the threat of power cuts, should consumption not be curtailed. New Zealand consumes around 43,500 GW/hours of electricity a year, with around 80% of that coming from renewable sources like Hydro, Wind & Geothermal. However, like the rest of the world, on our current trajectory, we are not well placed to address the coming surge in demand from the electrification of our transport fleet and the expected energy requirements stemming from AI.

It’s electrifying!

  • Electrifying economies has become a priority for many countries to reduce carbon emissions from fossil fuels. This means electrifying transportation, heating, and cooling through devices such as electric vehicles, heat pumps, and induction cooktops. In the United States, electricity demand is expected to grow twice as fast through 2030 compared to the last decade. This equates to a 40% growth in electric demand by 2035.
  • Another driver of growth in electricity demand is the rise of artificial intelligence. Already, over half the global workforce uses AI at least once a week. The computing engine of AI is data centres, which consume large amounts of electricity for their servers and for cooling. Data centres consume 2.5% of the US power grid but this is forecast to increase to 7.5% by 2030. AI demand could be five to six times the total amount needed in the future to charge America’s electric vehicles.
  • Every AI search consumes 10x the power of a typical google search.
  • A data centre today consumes 20 to 50 megawatts of power, but Mark Zuckerberg recently commented that he thinks AI data centres of the future could need a 1,000-megawatts of power. For context, 1,000 megawatts is what a typical-sized nuclear reactor produces.
  • In addition to increasing demand, most of the US electric grid was built in the 1960s and 1970s and is past its “best before” date. For example, the average age of an installed transformer in the United States is 38-40 years, and the suggested lifespan is 20-25 years. Currently, more than 70% of US transformers are aged more than 25 years.

This is not just a New Zealand or US problem; this is global. McKinsey estimate that in order to meet Net Zero by 2050 the world needs to invest US$9.2 trillion annually, and this excludes the demand from AI. For Kiwis, if we do not act now to build-out renewable capacity, then in 10 years we will face substantially higher electricity prices, rolling blackouts, and an economy throttled back due to inadequate infrastructure.  Power generation takes time to design, consent, approve and build.

Our Property & Infrastructure Fund is well-placed to benefit from this crisis, which can only be solved by building more infrastructure over the coming two decades. 

Mike Taylor

Founder & Chief Investment Officer

Start investing with Pie Funds today.
Information is current as at 31 May 2024. Pie Funds Management Limited is the manager and issuer of the funds in the Pie Funds Management Scheme and Pie KiwiSaver Scheme (the Schemes). Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Schemes’ investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.

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