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The digital age of AI and cloud computing and its rapidly growing demand for data centers and computing power is intersecting with industrial and consumer electrification trends including electric vehicles. The North American Electric Reliability Corporation (NERC) warns that this surge in consumption, coupled with the retirement of aging power plants, could result in power supply shortfalls across half of the United States within the next decade.
Rapidly growing electricity demand has caught many electric companies, municipalities and state regulators in the US by surprise and has led to a global hunt for locations with affordable and reliable access to electricity for data centers.
“Goldman Sachs Research estimates that data center power demand will grow 160% by 2030. Data centers will use between 8% - 12% of US power by 2030, compared with 3% in 2022. That kind of spike in power demand hasn’t been seen in the United States since the early years of this century and represents a seismic shift in composition of energy utilization in the United States. In Europe, power demand could grow up to 50% by 2033 and Europe may need to invest as much as $1 trillion-plus to prepare its power grid for AI driven consumption.
Utilities have struggled in key markets to keep up with new data center demand. “AI turned what was a backlog with annoyingly long wait times into an existential crisis. That’s because AI runs on high power GPUs, which, while technically more efficient than older chips also require more power. So, in addition to requiring more intensive cooling, the proliferation of these chips means they’ll also require more energy to be piped to data centers.” In addition, the average ChatGPT query takes 10 times more energy than a Google search query.
As the power ecosystem grapples with meeting data centers’ voracious need for power, it faces substantial constraints, including limitations on reliable power sources, sustainability of power, upstream infrastructure for power access, power equipment within data centers, and electrical trade workers to build out facilities and infrastructure. Currently, for example, the lead time to power new data centers in large markets such as Northern Virginia can be more than three years. And, in some cases, transformers and other electrical equipment are in short supply and may have lead times of two years or more as transformers and other parts.
Electric supply may be further strained by the shortage of skilled electricians and transformers and other parts, many being used in Ukraine and other war torn areas. McKinsey estimates anticipate a potential shortage of up to 400,000 trade workers in the United States based on projected data center build-out and comparable assets requiring similar skills, such as semiconductor fabrication and battery gigafactories.
Potential Risks and Implications
Data center and cloud computing costs could increase in the near term as the market adjusts and businesses should be realistic in their ability to manage or reduce these costs.
New technology infrastructure could be limited or companies may experience long lead times. Build time and cost contingencies for construction projects due to parts and labor shortages and potential inflationary impacts.
The power grid might become more fragile before the market catches up and stabilizes - ensure business contingency plans address potential of extended power outages.
Increased M&A activity and consolidation in the power market could affect current suppliers.
Commercial real estate suitable for data centers and similar projects is becoming scarce. Companies are looking globally for acceptable data center locations as intense competition by Google, Amazon, MSFT, OpenAI, Oracle, Meta and others will continue to drive scarcity.
Expect to see a resurgence in nuclear power as leading technology companies increasingly turn to nuclear power for data centers, companies may need to review and clarify any ESG clean energy related commitments regarding the use of nuclear power.
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