Morgan Stanley: U.S. data center demand may spill over, intensifying power tightness in Asia

Why could U.S. power constraints affect Asia?

Morgan Stanley believes the outcome of the Texas gubernatorial election could add policy uncertainty and constrain new power supply; large cloud service providers may therefore accelerate data center construction in Asia, boosting demand for reliable power in Malaysia, Thailand, India, Singapore and Japan.
The firm estimates that about 15 gigawatts of the power shortfall for U.S. data center demand could be met by additional data center capacity in Asia. If data center utilization in Asia rises toward its optimistic scenario, this demand could be absorbed earlier than the originally anticipated 2030.

Morgan Stanley expects Asia’s electricity demand to grow at an average annual rate of about 5% through 2030, about 1.4 percentage points faster than the current average for most Asian economies. By then, Asia’s electricity consumption will be about 20 trillion kWh, accounting for more than half of global demand.
The firm expects data centers to account for about 5% of Asia’s electricity consumption in 2030, with air-conditioning and cooling demand potentially accounting for a similar share. Industrial and household consumption, together with AI, is driving electrification, so power tightness extends well beyond data centers.

With centralized grids constrained, data centers are increasingly seeking to provide their own power or locate power supply nearby. Morgan Stanley expects Asia’s behind-the-meter power demand to rise to 8 gigawatts by 2030; behind-the-meter power-supply systems are located on the customer side and can reduce reliance on centralized grid supply.
Australia, Malaysia and Thailand are encouraging data centers to secure their own power. Generators such as Gulf Development, Adani Power and SembCorp are already providing behind-the-meter power to data centers; wholesale electricity prices in Malaysia rose 8% over the past year.
Power supply conditions differ by location: China has relatively ample power supply and is encouraging data centers to use renewable energy, while energy storage deployment is also increasing.

Morgan Stanley is more positive on market-based electricity pricing in Asia, believing pricing power is shifting to generators and grid operators, and expects electricity price spreads to widen by about 15% by 2028.
Equipment suppliers face different constraints: after two years of rising costs, consumers and policymakers are putting pressure on equipment price increases. Growth in electricity demand therefore brings different pricing outcomes.
The firm lists potential beneficiaries including Gulf Developments, Keppel, Adani Power and Samsung SDI, while naming KEPCO, Tata Power and others as companies to avoid.