Dive Brief:

• Electricity demand has been flat for a few years now, but a new report from Morningstar predicts three emerging industries will drive annual demand growth of 1.25% through 2030. While utilities are excited for the new demand, the report also warns they will need to make investments in the grid in order to benefit from the new load.
• Cannabis cultivation, electric vehicles and data centers will make up almost 6% of total U.S. electricity demand by 2030, the firm says, overcoming energy efficiency's drag on demand.
• Utilities will need to develop smarter, safer, cleaner and more reliable grids over the next decade in order to attract new customers, Morningstar analysts say. Failure to do so could lead to slower earnings and dividend growth.

Dive Insight:

Call them the Three Amigos of electric demand: marijuana, big data and electric cars. In many ways, a perfect reflection of the times.

And for utilities, they can't get here soon enough. Much of the stagnant demand has been attributed to energy efficiency in recent years, but with the help of milder weather, electricity purchases actually declined last year. While decoupling mechanisms have helped break the link between profits and sales for utilities, they still want to see increasing demand to boost revenues and system efficiency.

"Energy efficiency will remain a drag on electricity demand, but those gains face diminishing returns," Morningstar wrote in its November research note.

The firm's core demand model includes a focus on the relationship between population growth, real GDP and economic electricity intensity, including the effects of energy efficiency. This year, Morningstar said it enhanced its forecast by including the three emerging sectors.

Morningstar expects demand from EVs to climb 150% by 2030 and make up 1.7% of U.S. electricity demand by the end of the next decade. Data center demand will rise from 2% of electricity demand to 3.2% in the same timeframe. Electricity demand from the cannabis sector could grow from 15 TWh to 65 TWh and become as much as 1.5% of total U.S. electricity demand by 2030, the firm believes.

"Utilities will have to work hard to benefit from these new demand sources," wrote Morningstar analysts. Grid modernization efforts will be required to attract customers and handle the new load. "Worst-case, utilities that miss out on this new demand might face the so-called death spiral, leaving investors with disappointing future returns," the firm predicts.

Morningstar expects EV demand will be the last to show up, but when it does, it will make the largest impact. Electric vehicle adoption is slowly beginning to accelerate, and the Edison Electric Institute and the Institute for Electric Innovation have estimated there could be 7 million of the emissions-free vehicles on U.S. roads by 2025 — up from 567,000 at the end of 2016.