AC’s electricity surge is more appealing than AI’s

GE Vernova

20/07/2026 20:23

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.
By Robert Cyran

    NEW YORK, July 21 (Reuters Breakingviews) - Meteorologists are running out of deeper shades of red for summer maps. This June was the second warmest on record according to European scientists, and 2026 is likely to be the hottest ever, thanks to a rare “Super El Nino” weather pattern in the Pacific. That implies a surge in demand for air conditioning. But while AC’s electricity usage projections comfortably outstrip those of data centers for artificial intelligence, they should prove greener and less controversial.
Air conditioning, invented in its modern form in 1902, sparked a multi-decade migration in rich countries toward warm climates. Florida’s 23 million population has quadrupled in the last 50 years, as warm winters outweighed now manageable hot summers. Moreover, as per capita income increased, cool homes and offices became viewed as necessities rather than luxuries.
Global warming is expanding the parts of the globe where air conditioning is mandatory. Europe, for example, is among the most rapidly heating regions, with the temperature rising over half a degree Celsius per decade, or about twice the Earth's average rate. That means record temperatures and more frequent heat waves.
An even bigger engine for demand is developing country wealth. While India is hot and getting hotter its per capita income is shooting up, nearly quadrupling over two decades. Hence a lot more people are installing air conditioning.
During May’s extended heat wave temperatures hit 48 degrees Celsius (118 degrees Fahrenheit) in parts of Uttar Pradesh, India’s most populous state. That region’s population alone is nearly 250 million, three times that of France. While roughly a fifth of European homes had air conditioning in 2022, according to the International Energy Agency, the penetration rate in India is perhaps half as much.
Neither of these trends has any reason to slow, and there's decades of potential growth ahead.
In a decarbonizing world that prizes energy efficiency, this could make AC units part of the problem. Since 2000, worldwide electricity use for cooling worldwide has expanded by 4% annually on average, according to the International Energy Agency. Last year, cooling of homes, offices and public spaces accounted for about 2,900 terawatt-hours of electricity demand, or about 10% of world consumption.
That means a slug of additional power that puts artificial intelligence’s power surge in the shade. While the IEA expects data centers to grow fast and need over 700 terawatt-hours of electricity by 2035, there’s far more air conditioning installed already. If cooling keeps expanding at its long-term rate, it will need twice as much electricity, or some 1,400 terawatt-hours over that timeframe. That’s roughly as much power as seven billion standalone window units, used 200 hours a year, need.
Yet AC’s power demand has some positive aspects. Air conditioning use mostly synchronizes with sunshine, with a few extra hours after the sun sets. That makes it a natural match for solar, the cheapest and most rapidly constructed source of generation. That’s good news considering most of this demand will be in developing countries that lack financial heft.
The levelized cost of energy for solar firmed up with batteries, or essentially what it costs to build and run a project, will be between $35 to $75 per megawatt hour by 2030, U.S. utility NextEra Energy said last year, while a new natural gas plant will run from $90 to $111. Furthermore, solar projects can be started immediately, while the wait on a new large gas turbine runs about five years. Solar met about three-quarters of all additional electricity demand last year, according to think tank Ember. Wind met nearly all of the rest.
Contrast that with AI’s data centers, which require power 24 hours a day, seven days a week. That means they need additional sources of power beyond solar and batteries. It’s not a coincidence that giant tech companies are choosing to build gas turbines and seriously mulling nuclear power plants. Lazard estimates the all-in cost of new nuclear is about twice that of solar and batteries. And green power continues to grow cheaper, while conventional generation has become more expensive.
AC also has more positive spillover effects than data centers. AI power demand has meant rapidly rising electricity prices in developed countries due to equipment bottlenecks, worries over pollution, and fear of mass unemployment. AC, meanwhile, saves lives. The World Health Organization estimated in June that over 200,000 people in Europe died from heat over the past four years, with nearly all cases being preventable, and 500,000 annual deaths globally between 2000 and 2019.
AC’s efficiency can also be improved. About half the units being installed in the U.S. now are air-source heat pumps that can also provide warmth in the winter, but operate more efficiently and produce less pollution than traditional sources like gas or oil. Since heating typically requires far more energy, there is usually a net reduction in energy used.
As for who and which companies will gain, it’s again worth comparing to AI. While that technology has caused astonishing valuation gains in a few big technology companies developing models and chips, air conditioning is a largely mature technology with relatively low barriers to entry. Hence gains are spread wide. Lennox International LII.N, which largely concentrates on residential and office heating and cooling, trades at 20 times the next 12 months’ earnings, according to analyst estimates collected by LSEG. Peer Trane Technologies, which has a large data center cooling business, trades at a 50% premium.
The same trend is visible in power generation. The less the method of supply harms others, the lower the corporate profit. While gas turbines are difficult to make, creating a profitable multi-year backlog, solar power panels are a commodity prone to gluts. GE Vernova GEV.N, one of the biggest producers of gear that turns gas into electricity, is valued at over 50 times estimated EBITDA. JinkoSolar 688223.SS, the Chinese green power giant, is on 6 times.
Perhaps the financial play is to simply make broader bets. As air conditioning gradually became ubiquitous in the U.S. from the 1940s until the 1990s, hotter areas’ GDP per capita converged with cooler areas. It’s safer to bet that cooling helps developing nations get richer than to assume the data center boom continues.
Follow Robert Cyran on Bluesky.

(Editing by George Hay; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))