DeepSeek shakes up the energy-AI equation
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The sudden spotlight on Chinese AI startup DeepSeek, which claims greater efficiency than rivals, adds fresh chaos to gaming out data center power demand growth.
Why it matters: Energy firms ranging from small reactor startups to incumbent utilities to gas producers — and plenty in between — see data centers as a critical U.S. market.
- Electricity needed to train and use AI models is becoming a big variable for carbon emissions — especially if fossil fuels play an outsized role fueling the infrastructure.
The big picture: "The emergence of DeepSeek adds a new layer of uncertainty on the pace and magnitude of electric demand growth in the U.S.," John Larsen, a partner with the energy research firm Rhodium Group, said via email.
Threat level: Share prices of AI-exposed energy companies took a beating Monday.
- "The DeepSeek model is more energy and capital efficient which calls into question the significant electric demand projections for the US," Jefferies analysts said in a note.
What they're saying: "It appears that DeepSeek demonstrates that training high performance models can take far less electricity than previously thought," notes Larsen, the Rhodium Group partner.
- "At the same time, DeepSeek also greatly reduces the cost of using AI inference which could lead [to] consumers using it a lot more and that then leads to more electric demand," he said.
- Arvind Ravikumar, an energy modeling expert at UT-Austin, thinks DeepSeek is already puncturing some projections.
- "This is a good time to take stock of unrealized efficiency gains in AI compute before we end up building a bunch of 30-year gas plants," he said on Bluesky.
State of play: Projecting data center needs was already fraught before DeepSeek burst onto the scene.
- Estimates vary widely. For instance, a late 2024 Energy Department report estimates them accounting for 6.7% to 12% of U.S. electricity by 2028, up from 4.4% in 2023.
- But what's clear is that tech companies are planning massive capital investments.
Catch up quick: DeepSeek's reported breakthroughs have stunned Silicon Valley and are shaking up Wall Street.
- They were accomplished at a fraction of what the U.S. giants are spending and despite export bans on top-of-the-line chips, Axios' Scott Rosenberg reports.
- DeepSeek hit No. 1 on Apple's App Store a week after the Jan. 20 release of its R1 model, which works along similar lines to OpenAI's o1.
- Presented with a complex challenge, it takes time to consider alternate approaches before picking the best solution — and it explains its chain of reasoning to users, Scott reports.
The bottom line: "The future of electricity demand in the U.S. due to AI in data centers is frankly uncertain ... I think this is a key example of that," said Tanya Das, who directs the energy program at the Bipartisan Policy Center.
