Capital flows to the energy sector are set to rise in 2025 to US$3.3 trillion, led by clean energy technology investment and increased energy demand fuelled by the rise of artificial intelligence (AI) and data centres, the International Energy Agency’s latest World Energy Investment 2025 report has revealed.

The report credited increased electricity demand and the onset of the ‘Age of Electricity’ – the period where electricity becomes the dominant form of energy – as driving these changes. Investment in the electricity sector is set to reach US$1.5 trillion this year, around 50% more than the total spent on bringing oil, natural gas, and coal to market.

One of the major causes of increased electricity demand is an increase in data centres and AI. An earlier IEA report had projected that electricity demand from data centres worldwide would more than double by 2030 to around 945 terawatt-hours (TWh), with AI being the most significant driver of this increase. Electricity demand from AI-optimised data centres are projected to more than quadruple by 2030.

In the United States alone, data centre electricity demand could lead to an additional investment worth US$170-340 billion in generation capacity, grids and storage by 2030. The report noted that data centres were specifically creating demand for zero-carbon baseload power for which small modular reactors (SMRs) and advanced geothermal are suitable candidates.

“Electricity demand from data centres and AI is driving interest in nuclear power and investments in SMR development, although these will take time to materialise. Anticipated growth in data centre demand is already leading to a new wave of orders for gas turbines, particularly in the United States,” the report stated. 

Data centres’ increasing energy demand is also placing greater pressure on existing electricity grids, which are hindered by years-long supply chain delays to procure the transformers and cables that are central to an electricity grid, and inadequate investment.

“Over 90% of [data centre] operators now cite power availability as their top concern and nearly half place upgrading grid infrastructure as the most important mitigator. New grid infrastructure often takes between 5 and 15 years from planning to completion compared with 3 to 6 years for a DC. In 2024 the wait time for a grid connection was 1 to 3 years (up to 7 years in DC hotspots) with 205 GW of advanced-stage solar and wind waiting,” the report stated.

At the same time, investment in grids is failing to keep pace with spending on generation and electrification. “A concerted effort to improve regulatory frameworks, business models and financing structures is underway, but grid infrastructure is expected to constrain near-term deployment of utility-scale generation capacity,” the report notes. 

Read the full report here: https://www.iea.org/reports/world-energy-investment-2025

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