AI-driven demand is colliding with “structural” metals inflation to create a credit risk for utilities, according to Morningstar’s findings. (Morningstar)
Breaking it down: The simultaneous demand for copper from EVs, renewables, and AI—combined with a chronic lack of new mines—has raised the "baseline cost" of grid expansion, challenging the historical cost assumptions used for capital planning.
So? Utilities are caught between the urgent need to build and the political mandate to keep rates low. As capital costs soar, "prudence" reviews will intensify, increasing the risk that regulators will deny recovery for expensive projects to protect constituent bills.
What comes next: To mitigate rate hikes, regulators are increasingly moving toward a "beneficiary pays" model where data centers fund upgrades upfront. While this protects consumers, it denies utilities the ability to add those assets to their "rate base," stripping them of the long-term regulated returns that drive earnings growth.