AI, electrification and extreme weather redefine energy transition trajectory

Global electricity demand is surging faster than ever, driven by the rapid rise of artificial intelligence, extreme weather events, and the electrification of transport and industry. A new study, "Energy Transition 2024–2025: New Demand Vectors, Technology Oversupply, and Shrinking Net-Zero 2050 Premium", published in the journal Energies examines the latest projections from the International Energy Agency (IEA), BloombergNEF, and other key institutions.

The paper provides a comprehensive analysis of how soaring energy needs, oversupply in solar and battery markets, and a shrinking cost premium for achieving net-zero are reshaping investment strategies, grid planning, and policy priorities worldwide

Rising electricity demand driven by AI, heatwaves and electrification

Global electricity demand is surging faster than previously projected, with the study estimating an increase of more than 2,200 terawatt-hours (TWh) by 2035 compared with earlier forecasts. This surge is largely attributed to the rapid growth of artificial intelligence data centers, the intensification of heatwaves that drive cooling demand, and the accelerated electrification of transport systems. These factors are pushing utilities, regulators, and policymakers to reassess their planning frameworks to ensure grid stability and resilience.

The author notes that the integration of high-power data centers is not only raising baseline demand but also creating new challenges for grid operators. These facilities require reliable and flexible power supply, which necessitates significant investment in both generation and storage capacity. Projections suggest that more than 300 gigawatts (GW) of new flexibility, including battery storage and demand-side response measures, will be needed by 2035 to balance the system effectively.

Additionally, the surge in energy demand underscores the need for more accurate forecasting models. Policymakers and utilities are urged to adopt probabilistic planning methods to account for the uncertainty surrounding emerging demand drivers. This is particularly important as electrification expands into sectors such as heavy industry and long-haul transportation, where consumption patterns can shift rapidly with technological advancements and policy changes.

Technology oversupply and the shrinking net-zero premium

While demand is accelerating, the clean technology supply chain is experiencing unprecedented growth. The study highlights a significant oversupply in photovoltaic (PV) module production, estimated at around 1.1 terawatts (TW) annually, and battery manufacturing capacity of approximately 7.5 terawatt-hours (TWh) per year. This oversupply is driving down costs across the board, making clean energy technologies more affordable and accelerating their global adoption.

However, this cost deflation comes with its own set of challenges. The concentration of supply chains in specific regions, particularly in Asia, raises concerns about trade security and geopolitical risks. The potential for bottlenecks in key transit points, such as the Strait of Malacca, could expose the energy transition to external shocks. Policymakers are advised to pursue strategies that diversify supply chains geographically to mitigate these risks.

One of the most significant findings in the study is the shrinking cost premium for achieving net-zero emissions by 2050. The global investment required for net-zero has fallen from an additional 19 percent to just 15 percent above the baseline economic pathway for the 2025–2050 period. This reduction is primarily driven by rapid declines in the costs of solar and battery technologies. According to the research, this shift presents a historic opportunity to reallocate capital from fossil fuel infrastructure toward critical enablers of the transition, such as grid modernization, large-scale storage, and hydrogen development.

Capital reallocation is now considered a strategic priority. The study emphasizes that while the declining net-zero premium is a positive signal, realizing these savings will require decisive action to redirect trillions of dollars away from gas and fossil-based assets into technologies that enhance system flexibility and integration.

Regional insights and policy imperatives

The study provides a closer look at Central and Eastern Europe, with a specific focus on Poland, to illustrate how global trends are playing out at the regional level. Poland’s growing data center industry is projected to add approximately 1.8 GW of new demand by 2030, necessitating immediate investments in transmission infrastructure and battery storage systems. To align with net-zero pathways, Poland will need to invest between USD 5 and 6 billion annually, around 0.7 percent of its GDP, primarily in grid upgrades and storage solutions.

Wojtaszek argues that achieving these goals will require not only significant financial commitment but also robust planning and policy coordination. The report identifies four urgent policy actions:

1. Updating load forecasts to reflect higher demand growth, ensuring that infrastructure investments are not based on outdated assumptions.

2. Embedding demand flexibility and probabilistic planning in grid management to accommodate the volatility introduced by new demand sources like AI and climate-driven cooling loads.

3. Diversifying technology supply chains to reduce dependency on vulnerable global trade routes and to strengthen regional industrial capabilities through initiatives like REPowerEU and the Net-Zero Industry Act.

4. Reassessing performance metrics, moving away from percentage-based renewable energy targets toward absolute measures of decarbonization, such as emissions reductions and total clean energy deployment in TWh.

The research also underscores the importance of integrating advanced analytics and digital technologies into grid operations. This includes leveraging artificial intelligence for real-time system optimization and adopting long-duration storage solutions to ensure that renewable generation can meet demand reliably, even during periods of low production.

Future research and strategic outlook

The study calls for further research into capacity market design, long-duration storage technologies, and the social acceptance of higher levels of grid investment. Building transparent “Net-Zero Premium Trackers” could help policymakers and industry stakeholders monitor investment flows and identify emerging gaps in financing.

Moreover, the transition requires a collaborative approach, bridging the expertise of energy engineers, data scientists, policymakers, and financial institutions. This interdisciplinary cooperation is vital to translating the falling costs of clean energy technologies into rapid and equitable deployment worldwide.