Investment Strategy: Powering the AI revolution
More energy infrastructure is needed to support the rising demand for data centre capacity. But rapid power expansion will have to be compatible with decarbonisation commitments.
It isn't just tech bros who use artificial intelligence (AI) today - we all do. The spread of AI has sparked unprecedented investment in power-hungry data centres, where data processing for AI model training and use takes place. While the financial input needed to build more of these "AI factories" is immense, their realisation will depend on the ability of the power system to meet their vast energy demands.
Global data centres' power consumption is expected to more than double by 2030. This shift will put considerable strain on local power grids, particularly in the USA and Europe, where electricity networks are in dire need of upgrades. Data centres drain power grids due to their power surges in specific locations. Meeting this increasing demand requires solutions across the entire power value chain.
Data centres: key electricity demand driver
AI-focused tech giants have already shown their willingness to pay to get their data centres up and running as quickly as possible. This bodes well for companies offering alternative ways to connect to the grid, as well as off-grid solutions, such as local power generation.
lobal electricity demand has been rising on average by 2.9 % a year over the last decade, nearly twice the rate of growth of total energy demand. China has been the dominant driver, accounting for almost two-thirds of the demand, while consumption in the EU, Japan, and North America has largely stagnated as efficiency gains and slowing industrial production have offset new demand.
However, this trajectory is now shifting, with new demand drivers emerging in advanced economies, such as the adoption of electric vehicles (EVs), AI, and re-industrialisation. The International Energy Agency projects that global electricity demand will increase by almost 1100 Terawatt (TWh) per year until 2035. This is equivalent to adding the electricity demand of all the advanced economies combined over the next decade. In advanced economies, data centres look set to be the second-largest source of rising demand after EVs.
Coping with a surge in power density
Electricity consumption by data centres is driven not only by a growing number of facilities, but also by a surge in power density. A 10 mega-watt (MW) data centre was considered large ten years ago; today 200 MW is a normal size, with gigawatt-scale facilities on the drawing board. Although most of the electricity is used to power the accelerated AI servers, a lot of energy is required to cool these systems.
Historically, data centres have been clustered in specific regions, and this concentration is intensifying with the development of AI. So although data centres account for only a small proportion of global electricity consumption, their high power drain in periods of peak demand puts a strain on local power grids. This makes grid integration more challenging and has led to significant grid connection delays.
Connection queues for new data centres already span several years in key markets. New connection requests require a careful assessment of grid capacity to ensure that it can meet the additional demand. And data centres don't just need electricity to operate; water to cool systems and a skilled labour force are just a few of the other requirements for successful data centre operation. Furthermore, policymakers must take environmental implications of data centres into account, in the context of their sustainability and decarbonisation committments.