Booming Prospects in Critical Power Infrastructure

3 Min Read

Significant Growth Driven by Increasing Power Demands, AI, and Government Initiatives

The critical power infrastructure sector is poised for significant growth over the next several years. Market size is projected to reach $154.59 billion by 2027 and $196.64 billion by 2031, growing at a compound annual growth rate of 6.2%.¹ Growth is driven by increasing data center power demands, artificial intelligence (AI) advancements, a need for more resilient power systems, and government initiatives to secure infrastructure from threats.    

Data center power demand is forecasted to grow 160% by 2030. Worldwide, data centers currently consume 1-2% of overall power, however, this will likely rise to 3-4% by the end of the decade. In the United States, data centers are expected to use 8% of power by 2030, compared with 3% in 2022.²

This drastic increase is being fueled by AI and other new technologies. For example, a ChatGPT query requires almost 10 times as much electricity to process as a Google search. This increase in demand will require utilities to invest $50 billion to support growing data center energy needs.³ In response, some power plants want data centers to pay special tariffs. For instance, the American Electrical Power branch in Ohio requested data centers pay at least 90% of their contracted power draw upfront.⁴ 

Investor Insights 

• Data Center Needs: With the expected dramatic increase in data center power consumption, significant opportunities exist for investments in energy infrastructure to support this growth. To reduce waste, cut costs, and improve resiliency of federal infrastructure and operations, the Energy Act of 2020⁵ and Executive Order 13834⁶ outline energy efficiency and environmental performance requirements and best practices for federal data center owners and operators.⁷ Due to the implications of data center growth on electricity demands, an increase in government engagement, monitoring, and initiatives is expected.⁸ 

• Generative AI in Power Sector: The power industry has already begun using generative AI and is actively seeking out more ways to effectively use it to address core industry challenges, such as meeting rising energy demands and net-zero emissions goals.⁹ Implementing AI requires an increase in staff training and hiring for data analytics and cybersecurity. This opens investment opportunities in technology development, implementation, and training programs. Companies specializing in AI solutions for energy management and grid optimization are likely to be in high demand. 

• Cybersecurity: Energy system threats have propelled growing government support for critical infrastructure security.¹⁰ Executive Order 14028¹¹, along with additional initiatives, prioritize federal agency investments in cybersecurity defenses.¹² Investors should consider companies that can develop and implement a robust cybersecurity framework as promising opportunities. 

• Fragmented Market: The Critical Infrastructure Protection Market, in particular, is highly fragmented. Major players include: Bae Systems PLC, Honeywell International Inc., Airbus SE, Hexagon AB, and General Electric Company. Partnerships and acquisitions are being used to enhance product offerings and gain a competitive advantage. For example, Ericsson expanded its partnership with Google Cloud to develop an Ericsson Cloud RAN solution on Google Distributed Cloud. This expansion offers integrated automation and orchestration. It also leverages AI and machine learning for additional communications service providers (CSP) benefits.¹³ 

• Underground Power: The underground power line sector specifically is receiving increased attention and is expected to grow. Burying power lines versus leaving them exposed can reduce wildfire risk by 98%. Pacific Gas and Electric Company has committed to undergrounding 10,000 miles of power lines in high fire-threat areas.¹⁴ California has approved a long-term power line undergrounding program designed to strengthen the state’s grid against wildfires while driving down costs.¹⁵ Underground power lines can also contribute to grid resilience, long-term cost savings, and environmental benefits. However, the high upfront costs and technical challenges of burying power lines are a barrier to many utility companies.¹⁶ Investors with the funds or technical resources to offset these challenges may have an advantage in this segment.  

Make sound investment decisions

The critical power infrastructure sector is on the cusp of substantial growth, driven by increasing data center energy demands, the need for more resilient power systems, AI and technology advancements, and government concern to protect against cybersecurity.  

For investors, this sector offers numerous opportunities to capitalize on these trends.  

At Apex, we connect private equity clients with seasoned advisors who can provide deep analysis and strategic guidance. Contact us today. 

Resources:

¹Critical Infrastructure Protection (CIP)
²AI is poised to drive 160% increase in data center power demand
³Ibid.
⁴Ohio power plants want special tariffs on datacenters to protect regional grid
⁵Energy Act of 2020
⁶Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis
⁷Federal Government Data Center Transformation
⁸On the Horizon: US data center operators should prepare for government engagement
⁹2024 power and utilities industry outlook
¹⁰Ibid.
¹¹Executive Order on Improving the Nation’s Cybersecurity
¹²Federal Cybersecurity Progress Report
¹³Critical Infrastructure Protection Market Size & Share Analysis – Growth Trends & Forecasts (2024 – 2029)
¹⁴600 Miles and Counting: PG&E Hits Significant Milestone as Crews Safely Complete Construction, Energization of 350 More Miles of Underground Powerlines in 2023
¹⁵California regulators approve new program to expedite power line undergrounding
¹⁶CPUC Undergrounding Programs Description