U.S. Electrification ETF Launches Amid Rising Electricity Demand Trends

The Facts -

<ul><br />
<li>U.S. electricity demand is set to rise, driven by AI, EVs, and manufacturing.</li><br />
<li>The U.S. grid needs modernization to support increased and diverse power needs.</li><br />
<li>ZAP ETF invests in U.S. electrification, focusing on power and grid tech firms.</li><br />
</ul><br />

As the United States anticipates a surge in electricity demand over the next two decades, the Global X U.S. Electrification ETF (ZAP), now listed on NASDAQ, offers investors a chance to tap into this transformative sector. Launched on December 18, 2024, ZAP targets companies poised to benefit from increased electrification across the country, covering both traditional and alternative electricity sources as well as grid infrastructure advancements.

Projections indicate a significant spike in U.S. electricity usage, expected to climb by 47% from 2024 to 2040. This uptick is attributed to the proliferation of AI technology, rising electric vehicle (EV) adoption, and a boost in manufacturing activities. As a result, the power industry is shifting towards alternative energy solutions like renewables and nuclear power, necessitating extensive updates to grid infrastructure to handle a more varied energy mix and bolster grid resilience.

Anticipated Growth in Electricity Demand

• The U.S. is set to see electricity consumption rise from 4,012 TWh in 2023 to 5,900 TWh by 2040, driven by expanding sectors like AI, EVs, and data centers.
• As electricity needs increase, utilities must expand power generation and modernize grids to address ageing infrastructure and meet future challenges.
• Potential beneficiaries of this electrification trend include conventional and alternative electricity producers, alongside firms involved in grid infrastructure development.

Key Drivers of Demand: Data Centers, EVs, and Manufacturing

The confluence of various factors is expected to drive U.S. electricity demand upwards in the coming years. With data centers mushrooming due to AI's growing footprint, such facilities could see their electricity consumption nearly triple by 2030, accounting for over 9% of U.S. electricity usage. For context, current power needs for data centers already far surpass that of standard operations, with one ChatGPT request using ten times the energy of a typical Google search.

Electric vehicles are another critical factor. In the first nine months of 2024, electricity usage for light-duty EVs jumped by 32% compared to the prior year. As EV adoption skyrockets, the transport sector's electricity consumption is set to increase from 18.3 TWh in 2023 to more than 130 TWh by 2030.

The resurgence of U.S. manufacturing, especially in high-tech sectors like semiconductor production, further underscores the growing electricity demand. For instance, Taiwan Semiconductor Manufacturing Co's new facility in Phoenix is projected to use as much energy as a large nuclear plant when operational.

Transition to Alternative Energy

To meet the burgeoning demand, the power sector is increasingly pivoting to alternative energy sources. Companies like Dominion Energy aim to fulfill a large portion of their future capacity growth with carbon-free energy sources. The scalability and proximity of renewable solutions, such as solar and wind, to demand centers make them attractive options.

Beyond renewables, there is a growing interest in nuclear power, particularly small modular reactors, among tech firms like Microsoft and Google. These reactors promise efficiency, safety, and proximity advantages, potentially revolutionizing power sourcing for data centers.

Modernizing the Grid

The current state of U.S. grid infrastructure, much of which is over two decades old, poses significant challenges. Developers face long wait times to connect new facilities, which hinders rapid adoption of new technologies. Hence, accelerating grid upgrades is paramount, with projected investments in transmission expansions soaring from $9.2 billion in 2022 to $15.1 billion in 2024. To sustain electrification momentum, an estimated $1 trillion investment in grid infrastructure is needed by 2030.

Investment Opportunities with ZAP

The Global X U.S. Electrification ETF offers exposure to diverse companies across conventional and alternative electricity sectors, as well as those advancing grid infrastructure. This ETF positions investors to capitalize on the evolving U.S. power sector, driven by the push for modernization and sustainable energy solutions.

ZAP – Global X U.S. Electrification ETF

For more details on the holdings, click the fund name above. Note that holdings are subject to change, and investing always carries risks.

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