Electricity Demand Set to Surge in 2024-2025, IEA Reports

The International Energy Agency (IEA) recently released the Electricity Mid-Year Update report, exploring electricity demand trends and their implications for 2025, with a special focus on Europe and the global data centre sector. 

The report anticipates a 4 percent growth in electricity demand for 2024, up from 2.5 percent in 2023, marking the highest increase since 2007. This growth is primarily attributed to increased electricity demand in China, India, and the United States. The trend is expected to continue in 2025 with another 4 percent increase, significantly outpacing the projected global GDP growth of 3.2 percent.

As per the report, renewable sources of electricity are projected to expand rapidly in 2024 and 2025, with their share of global electricity supply expected to increase from 30 percent in 2023 to 35 percent in 2025. Solar PV alone is anticipated to meet roughly half of the growth in global electricity demand over these two years.

India’s electricity consumption is set to rise significantly, driven by its status as the world’s fastest-growing major economy, IEA reports. The report suggests an 8 percent rise in electricity consumption in 2024, matching the rapid growth of 2023. This surge is supported by strong GDP growth and increased cooling demand due to prolonged and intense heat waves.

In the first half of 2024, India faced record-duration heatwaves, pushing peak load to new heights and straining power systems. Assuming normal weather conditions return, electricity demand growth in India is projected to moderate to 6.8 percent in 2025.

IEA forecasts that China will see a 6.5 percent increase in electricity demand in 2024, mirroring its average rate between 2016 and 2019. This growth, although strong, marks a slight deceleration from 7 percent in 2023 due to ongoing economic restructuring. Factors contributing to this demand include robust activity in the services sector, industrial growth, and rapid expansion in solar PV, electric vehicles (EVs), and battery production.

The continued deployment of 5G networks and data centres, coupled with strong EV adoption in the domestic market, further bolster this growth. Over the past three years, China’s electricity demand has been increasing annually by amounts equivalent to Germany’s total consumption, a trend expected to persist through 2025 with a forecasted 6.2 percent growth.

In the United States, electricity demand is set to rebound significantly in 2024 with a 3 percent year-on-year increase. This recovery is partly due to a comparison with 2023 when demand declined by 1.6 percent amid mild weather. The improved economic outlook and rising demand for air conditioning during severe heat waves, along with the expansion of data centres, are key factors driving this growth. Demand is expected to rise by 1.9 percent in 2025.

The report also highlights that the European Union anticipates a 1.7 percent increase in electricity demand in 2024 as economic challenges ease, although uncertainties about the growth pace remain. EU electricity consumption had contracted in the previous two years, largely due to reduced output from energy-intensive industries.

Signs of recovery emerged in the fourth quarter of 2023, gaining momentum in the first half of 2024 as energy prices stabilised and various industries resumed operations. Despite this recovery, elevated energy prices compared to pre-Covid levels and a sluggish macroeconomic outlook continue to weigh on some industries, raising uncertainties about the pace of demand recovery.

The report also underscores the impact of heatwaves on power systems worldwide, with May 2024 marking the hottest month on record and the 12th consecutive month of record-high temperatures. Countries like India, Mexico, Pakistan, the United States, and Vietnam experienced severe heat waves, leading to surging peak loads due to increased cooling needs.

Despite the sharp rise in electricity use, clean energy sources are set to meet the majority of the increased demand through 2025, IEA notes. Among renewables, solar PV alone is expected to account for roughly half of the growth, with solar and wind together comprising almost 75 percent of the increase. By 2025, renewable generation is expected to surpass coal-fired electricity output globally.

The rise of artificial intelligence (AI) has heightened the focus on data centres' electricity consumption, making accurate data collection more important than ever. Historical estimates of data centres’ electricity use are often unreliable, and future projections vary widely due to uncertainties about AI deployment, its expanding applications, and potential energy efficiency improvements. Improved data collection in this sector is essential to better understand past developments and future trends.

The International Energy Agency (IEA) will host the Global Conference on Energy and AI in December 2024 to address these challenges. While clean energy sources will play a crucial role in meeting an increase in demand, the power sector faces challenges related to emissions, system flexibility, and data centre consumption, the report notes.