The electricity needed to power Artificial Intelligence (AI) data centers is surging. Electricity demand is so strong that the Utility sector is in a new bull market:
That’s right: boring old-school utility stocks are at the center of the AI revolution.
Northern Virginia is the data center capital of the world. Three hundred data centers are spread between Loudon, Prince Georgia, and Fairfax counties. Between them, they occupy over 51 million square feet of operating space. That’s equivalent to 8 Pentagons…
Dominion Energy (NYSE: D) is the utility that provides the electricity these data centers feed on.
Here are a few excerpts from Dominion’s recent earnings conference call that highlight the opportunity:
The data center industry has grown substantially in Northern Virginia in recent years. In aggregate, we’ve [Dominion Energy] connected 94 data centers with over 4 gigawatts of capacity over the last approximately 5 years. We expect to connect an additional 15 data centers in 2024. Northern Virginia leads the world in data center markets.
For some context, historically, a single data center typically had a demand of 30 megawatts or greater. However, we’re now receiving individual requests for demand of 60 to 90 megawatts or greater and it hasn’t stopped there. We get regular requests to support larger data center campuses that include multiple buildings and require total capacity ranging from 300 megawatts to as many as several gigawatts.
Dominion also owns the Millstone nuclear power plant in Waterford, Connecticut. Data center owners are increasingly trying to build new data centers on the sites of nuclear power plants, so they can be first in line.
Dominion addressed one such proposal:
We signed an MOU with NE Edge [data center owner] to work together on the development of a data center on Millstone property. And they are continuing to work with the state agencies and legislators to gain approvals to move that project forward. If the permits are granted, then we remain ready to support the project, and that would include providing land and a long-term PPA [power purchase agreement] for power from a portion of Millstone, which will be about a few hundred megawatts.
Finally, an analyst asked how Dominion was approaching a new nuclear technology called SMR, or small nuclear reactor:
[There’s] legislation passed in Virginia to possibly recover some cost of SMR development in the state…Just wondering any thoughts you see there on the potential over time? We see Ontario Power really moving forward swiftly on SMR development. And just wondering, any high-level thoughts you might be able to share there?
Dominion: I think that legislation confirms a continued commitment in Virginia among policymakers in support of nuclear power. We operate 4 units in Virginia and have well for many years. The Navy has a substantial nuclear fleet. Many of those vessels ported in Virginia. And there are other parts of the nuclear industry that are all represented in Virginia. So I think it was a very positive sign that, that legislation passed that continues to support nuclear power in Virginia. We included SMRs in our last IRP out toward the end of the plan. We continue to investigate the opportunity to be able to deploy SMRs on the behalf of our customers. But I would add, just like with every other investment that we think about, we need to make sure that it’s customer-friendly, that it fits within the parameters of our balance sheet and our business risk profile. So we’re continuing to explore SMRs…
Now, a small modular reactor, or SMR, is exactly what it sounds like they are essentially portable reactors that can be installed on the site of a data center, for instance, and provide up to 300 megawatts of power. This power would effectively be off-grid.
There are several start-up SMR companies, including one founded by OpenAI co-founder Sam Altman, called Oklo (NASDAQ: OKLO). Oklo just went public via a reverse merger with a SPAC – these SPAC maneuvers don’t typically go very well for investors.
Oklo is valued at $1.35 billion and does not have any regulatory approval. In fact, there’s only one SMR company whose technology has been certified by the Nuclear Regulatory Commission. It’s called NuScale Power (NYSE: SME) and it’s valued at $775 million.
I wrote about NuScale back on May 1, when the stock was $5.75. It’s over $9 as of today.
Godspeed,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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