Sustainable Energy - March Commentary

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The Internation Energy Agency (IEA) recently published its annual outlook for the electricity sector. This month we take time to digest its findings and present our continued case for electrification. The IEA’s analysis supports an increasingly strong outlook for global electricity demand. Data centres, the electrification of buildings and the onshoring of manufacturing is driving an inflection in power demand in developed markets. We see electrification as a secular trend that will run at least into the 2040s.

Electricity demand, which has grown at 2.8% a year for the last decade, is expected to grow at 3.6% a year to 2030 as the global pace of electrification picks up. The last decade saw on average 700TWh of consumption added annually, and this is expected to rise to 1100TWh over the next five years, meaning there will be an addition of on average 50% more additional electricity demand per year . As a result, electricity consumption is now projected to grow at least 2.5 times faster than overall energy demand, hastening the world’s transition to an electricity-based economy. The IEA therefore identifies not only a significant increase in global electricity demand, but a structural shift in what is driving it.

Inflection Point

With the uptick in advanced economies’ electricity consumption, we have seen an inflection point in demand growth and GDP. Global electricity demand outpaced GDP growth in 2024, the first time this has occurred in the last 30 years (aside from economic crises). This inflection supports our investment case and is one the IEA expects to continue to 2030 and beyond.

Difference between GDP and electricity demand growth rates, 1995-2030E

Source: IMF, IEA estimates, February 2026

Developed economies

The structural inflection in developed economies has three reinforcing drivers: policy, improving technology economics, and the reshoring of industry. While grids are decarbonising, the cost of heat pumps, electric vehicles and renewable generation continues to fall. Electrification has therefore become an increasingly rational choice for western consumers and businesses alike. Layering on top of this, geopolitical protectionism has accelerated the return of manufacturing to North America, adding a further source of demand growth that is less dependent on any single policy cycle. The impact of data centres is widely debated, but they play only one part in the broader structural shift. The cumulative effect is that western electricity networks must now absorb significant load growth.

Global electricity demand growth by region, 2015-2030E

Source: IEA estimates, February 2026

This contrasts with the past 15 years, in which advanced nations have seen stagnant electricity demand as improvements in energy efficiency have offset any GDP-led growth. Indeed, improvements in building efficiency have allowed economic growth to continue while electricity demand has fallen. This dynamic has been accompanied by underinvestment in ageing grid infrastructure, an oversight now having to be addressed as power demand from EV adoption, electric heating and cooling, and data centre investment starts to pick up.

In Europe, after a substantial decline in 2022/23 (after the Russian invasion of Ukraine), and a lacklustre recovery in 2024/25, total electricity demand growth is forecast to average 2.3% annually in the 2026-2030 period. Increased electrification of industry, buildings and transportation will drive the rebound in demand. Europe leads developed economies in EV adoption, with increased vehicle charging demand expected to contribute more than a third of EU electricity demand to 2030, making transport the second-largest contributor to EU demand growth after buildings (including data centres).

Electricity demand growth by sector and end use in the European Union, 2015-2030

Source:  IEA estimates, February 2026

Electricity demand growth in the United States has been higher than the EU’s in recent years. In particular, self-sufficiency in natural gas allowed the US to avoid the worst of the power price spikes in 2022/23. Looking ahead, the US’s expanding industrial base and greater focus on construction means its expected demand growth is 40% larger in absolute terms than the EU’s. Last year’s signing of the One Big Beautiful Bill Act, President Trump’s modifications to the US’s energy transition policy and incentivisation of industrialisation, brings policy clarity which provides an opportunity to unlock vast US development. Eaton Corporation highlights that since 2021, investment of over $1.8 trillion in over 600 ‘mega’ projects has been announced, but only around 15% of these projects are underway. This leaves an enormous pipeline of electricity demand yet to materialise on the grid. The value of this backlog alone is roughly ten times the amount that the US typically spends on annual manufacturing construction projects. As the policy overhang around trade, permitting and domestic manufacturing incentives is removed, we expect this backlog to accelerate into construction, driving US industrial power consumption growth up to 2-3% annually until 2035.

Emerging economies

While buildings, EVs and data centre expansion are driving fast growth in developed economies, it is important to note that AI is not the dominant driver of global electricity demand. Indeed, it remains a relatively small proportion of the overall picture. Emerging economies account for nearly 80% of additional electricity consumption to 2030, and the forces at work there are broader and more structural in nature.

The single largest driver of electrification globally is the buildings sector, which accounts for nearly half of the increase in electricity demand from 2026 to 2030. In the developing world, this is most visibly expressed in space cooling. Rising temperatures and increasingly severe heatwaves are creating surging demand for air conditioning (AC) in India and Southeast Asia, where AC ownership remains relatively low but is growing rapidly. In India, where cooling has historically accounted for around 15% of nationwide electricity demand during peak summer months, the IEA expects growth of 6.4% annually through to 2030. Indian demand growth slowed to 1.4% in 2025 following milder weather, but a sharp rebound of 6.9% is projected for 2026, illustrating just how weather-sensitive and volatile this demand can be. Southeast Asia, forecast to grow at 5.3% annually through 2030, is seeing a similar pattern as rising incomes accelerate AC adoption in Indonesia, Vietnam, Malaysia and the Philippines.

Global electricity demand growth by sector and end use, 2015-2030E

Source: IEA estimates, February 2026

Industry represents the second major pillar of growth. Emerging markets are transitioning away from the fossil-fuel-based, energy-intensive heavy industries that dominated the previous decade, towards electrified or lighter, higher-value manufacturing. Across Southeast Asia, countries are attracting electronics assembly, semiconductor packaging and consumer goods production, activities with a smaller carbon footprint per unit of output but remain meaningfully electricity intensive. This shift mirrors the reindustrialisation dynamic playing out in advanced economies, and in both, industry is increasingly an advocate for electrification.

Transportation represents the fastest-growing contributor in percentage terms, with its share of demand growth forecast to more than double to over 10% of total additional demand by 2030. EV adoption is accelerating throughout emerging markets and public charging infrastructure is being built out rapidly. In China, for example, power demand from public EV charging stations rose nearly 50% in 2025, illustrating what this transition looks like at scale as it begins to ripple through the developing world.

Global electricity consumption (1990-2050E)

Showing % final demand in 2050

Source: IEA, Guinness estimates, January 2026

Compelling investment case for electrification

When reviewing the IEA’s outlook for electricity demand to the end of the decade, two aspects are clear. First, the world is at an inflection point, with the electrification of buildings, industry, and transportation driving global power demand to annual increases in the 3.5-4% range, higher than 2.5-3% range seen over the past 15 years. Secondly, we are seeing developed economies, especially the US, now experiencing power demand growth after a long period of stagnation. In the short term, data centres are a significant driver of US demand growth, but in longer term, the US will be part of the broader electrification trend that is both structurally durable and becoming less sensitive to any single policy or economic cycle. Against this backdrop, we believe the investment case for companies in the electrification supply chain remains compelling.

The value of this investment can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you invested.