AI, power and the new geopolitics of energy

The global power sector is undergoing transformational change, with demand growth set to accelerate thanks to emerging market development, advancing electrification and an AI-driven data centre boom. But can supply be ramped up fast enough? 

At our inaugural European Power Investment Summit, held in London on 4 November 2025, Wood Mackenzie’s Global Head of Power and Renewables, Xizhou Zhou, spoke about the implications of these trends for the future of the power sector. Fill out the form to download his presentation from the event, or read on for a summary of topics covered. 

Power demand growth will accelerate as emerging markets develop 

Overall global power demand will surge across the next three decades. Developing markets will be particularly important; base-case projections from our Lens Energy Transition Scenarios (ETS) tool see compound annual growth rates (CAGR) for power demand of over 5% in China, India and Southeast Asia, together accounting for over half total global demand growth to 2060. 

Even in mature markets where power demand growth has been slow, there is renewed growth prospect. In Europe, falling power demand in recent years will start to rebound towards the end of the decade, as prices ease and the electrification of transport and industry accelerates. We expect an overall CAGR of just over 2% between 2025 and 2050, although demand growth will vary significantly between countries - from as low as 30% in Serbia to as high as 157% in Denmark.   

Data centres will play an increasingly visible role in power markets 

In the US - home to most of the world’s biggest tech firms - the massive processing needs of AI are turbocharging power demand from data centres. Spending on facilities by the five largest hyperscalers (companies like Amazon, Microsoft and Google that operate massive, scalable data centres designed to handle huge workloads) is forecast to jump 50% to over US$300 billion in 2025. US utilities are scrambling to meet connection requests from data centres; our tracking showing that US utilities have already committed to add 116 gigawatts (GW) of large load to their networks, equivalent to around 15% of US peak electricity demand in 2024. 

Aside from Ireland, where we estimate facilities use over 20% of electricity generated nationally, European data centres account for only a small share of national power demand. However, with Europe the next logical hub for data centre deployment this could change rapidly; developers have already proposed 35 GW of capacity since 2023 (almost half of which is in the UK). 

Data from Wood Mackenzie’s PowerRT monitoring sensor network shows a direct link between fluctuations in loads at major data centres and real-time power prices. We expect data centre power demand to play an ever-greater role in regional power markets as its proportion of network load increases.

Major bottlenecks in the equipment supply chain continue 

Our analysis shows that the rapid ramp-up in demand is already squeezing supply chains particularly in the US, with a resulting impact on both timelines and prices. 

Rising global demand for gas turbines has led to a supply crunch, with lead times hitting 243 weeks in Q2 2025, based on Wood Mackenzie’s tracking of supply chains. The wait for power transformers and generation step up (GSU) transformers (used to increase voltage for applications from power plants to the high-voltage grid) have shown some signs of improvement in 2025, but customers are still waiting two-to-three years.    

Resultant price escalation is most evident in the US, although it is spilling over into other markets. Costs for new gas-fired power stand at over US$2,000 per kilowatt (kW) in many US states – and rising –  while our calculations put the average cost of solar photovoltaic (PV) systems in the US at US$1,150 per KW, roughly half that of new gas plants. Previously, solar capex had generally been lower than gas plants. . 

China dominates the global solar supply chain, giving its companies strong influence over the market. In response to western governments’ concern over China’s domestic overcapacity that has driven global solar module prices down, the Chinese government this year issued policies to address this. The deliberate coordination of polysilicon production capacity curbs, export VAT rebate reduction / cancellation, a domestic anti-dumping policy and higher module efficiency standards have already resulted in 20% increase in domestic module prices, and will lead to continued price increase for global solar module prices. 

Developed markets face diverging scenarios for pricing 

Despite President Trump’s ambitious election promise to cut energy costs for US consumers in half within 12 months of taking office, US electricity prices have continued to rise in 2025. Our analysis indicates a bullish long-term story for US power prices, with real energy prices climbing 118% between 2025 and 2060, thanks to a combination of surging demand, increasing cost of new build, and rising natural gas prices. 

By comparison, average European power prices will be volatile but will tend to drift lower in real terms for many countries over the long term. Between 2025 and 2034, delayed growth will see prices will fall; before increased electrification and higher cost of LNG begin to offer price support over the following ten years. From 2045, prices should reach a long-term equilibrium, with demand playing a more responsive role in price formation. 

The US and China have chosen different paths on energy 

The two global superpowers have pursued very different energy strategies that will have important implications for their future energy costs. While the US enjoys a strong position in fossil fuels - controlling 18% of global oil and 24% of liquefied natural gas (LNG) production - China has sought almost total dominance of global markets relating to solar power, battery storage and EVs. The outlines of a “petrostate” versus “electrostate” divergence are starting to become clearer.  

China currently controls 95% of polysilicon wafer production and 80% of lithium-ion cells, as well as the vast majority of production of the refined resources required to make this technology — including lithium compounds, graphite and cobalt. As a result, it is leading a new club of developing markets towards a sub-US$100 per megawatt-hour (MWh) energy transition.

Learn more 

Don’t forget to fill out the form to download the full presentation, which covers these themes in greater detail and includes a wide range of charts and supporting data.