The unstoppable rise of data center usage has been a hot topic in the industry for a while now. And despite all the extra efforts, initiative, and investments, it does not seem enough. Quite the opposite. According to a new analysis and forecast, things are about to get grim soon.
Marc Ganzi, CEO of DigitalBridge did that forecast during a recent conference call about the company’s quarterly financial results, Seeking Alpha notes. For context, DigitalBridge is a company that specializes in the building of data centers, cell towers, fiber networks, small cells, and related digital infrastructure. They know what is happening across the industry quite well. And their viewpoint is not particularly great.
It is all about the power
Power is really the constraining factor. And that’s going to become more evident to you and to the rest of the investor community over the next two years. We started talking about this over two years ago at the Berlin Infrastructure Conference when I told the investor world we are running out of power in five years. Well, I was wrong about that. We are running out of power in the next 18 to 24 months,” said Marc Ganzi.
There are similar notions from other big media and analysts. The Washington Post recently said that “Amid explosive demand, America is running out of power”. And their colleagues from the New York Times wrote: “AI frenzy complicates efforts to keep power-hungry data sites green.”
“The problem has been known for a very long time,” Denise Lee, VP of Cisco’s sustainability engineering office, told Light Reading in a recent interview. Now things are becoming even more complicated as AI is supercharging demand for the most powerful data centers while at the same time power utility companies are struggling to keep up with the demand. They cannot add as much new power generation as needed and are also transforming from older technologies into new projects.
“Our checks indicate that the minimum lead time to get data center power in most major US markets is +3 years,” says the analysts from TD Cowen in a report from February 2024. They give three very telling examples: It takes up to two and a half years in Dallas to obtain the needed permits for the necessary power to run a new data center. The time In Atlanta is up to 6 years and in California – up to 7 years.
Jumping across the pond over to Europe to check out how the situation does not yield reliable results. According to TD Cowen the lead times are up to 8 years in the top markets like Frankfurt, London, Amsterdam, Paris, and Dublin. And even worse – the analysts expect the trend to continue and lead times may become even longer.
Is AI to blame?
It is easy to say “yes.” After all the problems started to arise when AI came to the scene and drove the demand up. According to the International Energy Agency (IEA), in 2022 data centers consumed 460TWh which is 2% of all global electricity for that year. Most of this energy was needed for computing and cooling. The report predicts that the data center electricity usage will double by 2026. And it singled out cryptocurrency mining and AI as the two major culprits among the overall trend of using increasingly power-intensive workloads.
The Uptime Institute also gives us a glimpse of what to expect. It says that currently AI is using about 2% of the total data center power. By 2025 consumption will jump to 10%. So, no, AI is not to “blame” for what is happening, but it is just another reason electricity generation efforts must accelerate and not just in a few regions, but globally.
It is time for brave and sizeable solutions
Of course, the data center industry is aware of these challenges. The sector is working hard to solve them before they become serious issues as that would lead to even more bottlenecks, increased costs and missed opportunities. So, it’s better to have solutions in place as soon as possible. This means exploring more power generation technologies and opportunities.
“There’s no one size fits all solution,” says Lee. And Ganzi agrees: “A big piece of the power puzzle centers around renewables”. One of Digital Bridge’s clients for example is using electricity mostly made by wind and solar. But another client is relying on hydropower. And in general, most data center operators are now planning their new projects close to the power sources of their choice which can be anything, including natural gas and even nuclear power plants.
That last one is shaping up to be a particularly interesting trend within the industry, Datacenter Knowledge reports. In fact, there are now companies making small modular reactors (SMR) for the private sector. And yes, that’s right, data center operators are extremely interested.
„We imagine a world where there is no limit on energy. We want people to live high-energy lifestyles. For this to happen, energy production needs to be decoupled from environmental impact and, therefore, clean energy needs to be abundant and inexpensive,” says Bret Kugelmass, CEO of Last Energy, a developer SMRs.
SMRs do have a lot of potential. For example, Last Energy is using a light water reactor. It can be produced in diverse sizes to fit the specific needs of each customer and even of each data center. These types of reactors are up to 95% pre-assembled, delivered on trucks and then completed on-site. Each unit can deliver up to 20MW and yes, customers can install multiple of them to get to the exact power level they need.
The nuclear race
„The data center sector is an ideal application for onsite nuclear power. You have an industry that is growing as fast as development schedules and supply chains permit that is increasingly facing power supply constraints. The industry is committed to procuring carbon-free power but needs the baseload power traditionally provided by gas or coal plants. Nuclear is the answer, and the industry has quickly realized this,” says Kugelmass.
Another SMR is made by NuScale. It uses the same approach but it’s bigger. Thus, it can make a lot more power – over 400MW. And late last year the hosting provider Standard Power said it will use NuScale’s SMRs to build two nuclear power plants in Ohio and Pennsylvania for a total of 2GW of electricity to provide to local data centers by 2029. Another project in Northern Virginia will use four to six SMRs to power 20 to 30 data centers along with the generation of hydrogen fuel and will provide backup power for the grid.
According to the AFCOM State of the Data Center Report, about 21% of data center operators are saying they will use or will at least explore the option of using nuclear energy. That is more than double from last year.
“We are in mid-2024 and entering what some call the ‘electrification gauntlet.’ It consists of a creaky old electric grid about to be asked to support a motherload of new workloads intended to assist in decarbonizing and shoring up the economy. And to make things even more difficult, we must make this happen while not adding more CO2 or methane to the atmosphere,” says Andrew Bochman, a non-resident senior fellow for the Global Energy Center and the senior grid strategist and infrastructure defender at the Idaho National Laboratory (INL).
According to him: “The answer may lie in a realm of physics we harnessed in the middle of last century. And despite the many challenges it has faced in terms of public perception and costs, one thing I’ve long said is that when climate concerns eclipse nuclear energy concerns, everyone will want an SMR.”
A lot more must be done
Another possibility is natural gas. And according to TC Energy, that is going to be a big segment soon. Gas demand for electricity specifically for data centers will increase by as much as 8 billion cubic feet per day by 2030, says the company. That would be equal to 21% of the entire current US demand for natural gas for electricity generation.
TC Energy is already working to reinforce its gas-pipeline networks in several US states. It is also adding more connections to local distribution companies in preparation for the expected growth in demand. “We do see a meaningful load-in growth opportunity and increased demand in coming years due to data centers,” says the company.
The analysts from Enverus Intelligence Research also have similar expectations. In a recent investor note they predicted that installed data center electricity capacity will grow by 14 gigawatts by 2030. If that demand is fully served by natural gas, it will equal the 2 billion cubic feet per day mentioned above.
“Data center capacity growth will not translate one-to-one into net new load growth. Operators will be on the hunt for cheap interties from current industrial consumers”, says Carson Kearl from Enverus.
This will create a lot more opportunities for energy providers and a bigger selection for data center operators. The main challenge will be the time and synchronizing the building and adding of both new data center capacity and energy supply, so that both industries fuel each other. Otherwise, we risk one being either strained or oversupplied thus forcing it to slow down and wait or even not act until the needs are met by the other side.