Market Commentary

• Estimates vary widely, but we believe power demand could rise 25% over the coming decade-plus.
• The nuclear option appears to be back on the table and can help power the U.S. economy in coming years and beyond.

No, this week’s topic isn’t addressing anything to do with politics and conversations that might be going on in the United States Senate right now. But it does have everything to do with the surge in electricity demand that some experts expect to occur in the U.S. over the next 10 – 15 years. Estimates vary widely, but we believe that demand could rise 25% over the coming decade-plus. Our estimate in the nearer term calls for demand to increase 2% to 2.5% annually over the next five years. We think artificial intelligence (AI) will be the main driver, but as many of our regular readers know, states like Texas and California were having trouble meeting electricity demand during peak-usage periods well before the discussion turned to power-hungry data centers. We think it makes sense that a number of different power sources will be used to meet this anticipated demand, including coal, natural gas, renewables, and, yes, the nuclear option.

It wasn’t all that long ago that some countries, like Germany, threw in the towel on nuclear-power generation and decided to aggressively move toward an almost entirely renewable-energy strategy. In fact, Germany shut down its last three remaining nuclear-power plants in April 2023 with the intention of going to all renewables after a transition period using mostly natural gas to generate power. Fear of nuclear power due to the potential for accidents has been a main reason why any number of nations have suggested moving away from this technology to meet energy demand. This strategist can certainly remember the nuclear-power generation concerns that gripped the nation as a result of the Three Mile Island accident in March 1979 and, outside the U.S., the even more severe Chernobyl accident that occurred in April 1986. These accidents created headwinds for further nuclear-power plant construction in recent decades.

But advanced nuclear technologies are being developed that will feature small modular reactors (SMRs) that are intended to supply power on a more limited scale than older facilities, be safer and cheaper to construct, and be able to be built and become operational over a shorter period of time (see our “Sector Insights” piece dated November 25, 2024 for more information). In addition, some existing nuclear facilities are being upgraded to produce more power. Even the closed reactor at Three Mile Island is scheduled to reopen in 2027 as utilities fast-track power production to meet demand. Many of the companies developing advanced nuclear technology and that will also build the facilities are in the Industrials sector, on which we hold a favorable rating. We also favor the Utilities sector should power demand, and pricing, increase as we expect.

Yet the deployment of SMRs is still likely five years away, or more. In the meantime, natural-gas turbines and generators, produced by Industrials-sector companies, are providing power to large power targeted customers that are building or operating data centers. Renewables and battery technologies will fill a portion of near-term demand as tax incentives still exist, and that power can be deployed quickly. But make no mistake, the nuclear option appears to be back on the table and can help power the U.S. economy in coming years and beyond. 

Forecasts and estimates are not guaranteed and based on certain assumptions and on views of market and economic conditions which are subject to change.

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