Why power markets set for sweeping long-term changes

Morgan Stanley warns global power markets are entering sustained tightness as electricity demand accelerates by more than 1 trillion kWh annually through 2030, driven largely by AI data centers and broader electrification—global consumption is projected to rise to 35,093 TWh by 2030 (from 28,130 TWh in 2024) with data centers accounting for roughly 20% of the increase and roughly $3 trillion of data‑center spending by 2028 (including a 126 GW rise in data‑center load in 2025–28). The report says this is already pushing prices and investment—power prices rose ~15% in 2024 amid a record $1.5 trillion of sector investment—and expects spark spreads to widen (about +5% globally by 2027, ~+15% in Asia 2025–27), shrinking reserve margins and exposing grid constraints as grid capex must increase ~30–40% through 2030; forward markets are in backwardation and likely understate long‑term tightness. For investors, Morgan Stanley flags clear opportunities and risks: merchant power and behind‑the‑meter supply will grow (merchant share to ~25% by 2030, captive ~10%), gas and storage are set to play a larger role (gas to supply ~1.3 trillion kWh by 2030), renewables face cost and curtailment pressures from China supply rationalisation, and the firm estimates roughly $350 billion of value creation across the power supply chain and a ~300 basis‑point uplift in generator returns as markets adjust.

Analysis

Morgan Stanley projects global electricity consumption to rise from 28,130 TWh in 2024 to 35,093 TWh by 2030, driven in large part by AI data centers which Morgan Stanley says account for roughly 20% of the increase, with data-center spending of about $3 trillion by 2028 and a 126 GW rise in data-center load from 2025–28. Power prices already rose roughly 15% in 2024 amid a record $1.5 trillion in sector investment, signaling demand-driven pricing power today.

The brokerage expects tightening to persist: spark spreads are forecast to rise ~5% globally by 2027 and ~15% in Asia from 2025–27, reserve margins to compress across major regions, and every additional gigawatt of new load in the US to lift wholesale prices by ~8%; forward markets remain in backwardation and likely understate long-term tightness. Grid investment has lagged generation, prompting an expected 30–40% increase in grid capex through 2030 and making grid access a scarce asset that commands premia.

Supply-side adjustments favor gas, storage and merchant generation: natural gas is forecast to supply ~1.3 trillion kWh of additional generation by 2030, coal and gas investments have surged to the highest since 2017, and Morgan Stanley estimates ~300 basis points of uplift in generator returns and roughly $350 billion of value creation across the power-supply chain. Renewables face headwinds from China’s polysilicon rationalisation (one-third capacity cut, ~15% module-price rise by 2027) and rising curtailment, which elevates the role of gas and behind-the-meter solutions.

Key Decisions for Investors

• Consider increasing exposure to merchant power generators, gas-fired generation and grid-scale storage suppliers because Morgan Stanley forecasts gas to supply ~1.3 trillion kWh by 2030, merchant share rising to ~25% by 2030, and an estimated ~300 basis-point uplift in generator returns
• Tilt allocations toward transmission, distribution and grid-infrastructure contractors and firms enabling behind-the-meter reliability given projected grid capex growth of 30–40% through 2030 and grid access becoming a scarce, reliability-priced asset
• Underweight or selectively hedge pure-play solar manufacturing and developers with high module-supply exposure because China’s polysilicon rationalisation is expected to cut capacity by one-third and lift module prices ~15% by 2027, while monitor spark spreads, reserve margins and the 126 GW data-center load increase (2025–28) as trigger points to reweight positions