Growing Energy Demands of Data Centers
Through our work at Prime Meridian we have been doing a lot of research on data centers, trying to learn more about the supply / demand dynamics of compute and the energy required to power the sector’s future growth.
In early 2023 Prime Meridian financed a data center infrastructure company located in the Mid-West that provides facilities and energy to customers with advanced data processing needs. During the underwriting process we determined that there is a critical need for access to energy, which can take years to procure from a utility if it is available at all. In fact, access to energy may be the limiting factor for future data center developments.
The company that Prime Meridian financed has Power Purchase Agreements (PPAs) in place to provide 400 megawatts of power, which as you will see below, is a tremendous asset.
The Growing Energy Demands of Data Centers
In today’s digital age, data centers are the backbone of our internet-driven world, supporting everything from cloud services to streaming media and AI applications. As the demand for digital services continues to rise, so too does the energy consumption of data centers. Understanding the energy requirements of these facilities is crucial for investors and for planning future energy infrastructure and sustainability efforts.
The Scale of Data Center Energy Consumption
Data centers come in various sizes, and their energy consumption can vary significantly based on their scale and the services they provide. Here’s a breakdown of their typical power usage:
- Small to Medium Data Centers:
- These facilities usually support regional operations or small to medium-sized enterprises. They typically consume between 0.5 to 1 megawatt (MW)of power. Despite their smaller size, their collective energy use is substantial when considering the number of such data centers globally.
- Large Data Centers:
- Larger data centers, often owned by major corporations like Amazon, Google, and Microsoft, consume significantly more power. These facilities typically require 10 to 20 MWto operate efficiently. The higher power consumption is driven by the need to support extensive computational tasks, data storage, and cloud services.
- Hyperscale Data Centers:
- At the top end of the spectrum are hyperscale data centers, which are designed to handle massive volumes of data and support large-scale cloud computing and AI workloads. These facilities can consume 30 to 50 MWor even more, depending on their capacity and the intensity of their operations. For instance, AI and machine learning applications, which require extensive computational power, significantly drive-up energy usage.
The Rising Demand for Energy
The energy demands of data centers are expected to grow rapidly in the coming years. By 2030, power consumption from data centers in the U.S. is projected to nearly double, reaching about 35 gigawatts (GW), up from 17 GW in 2022.
This growth is largely driven by the increasing adoption of AI technologies and the expansion of digital services. Hyperscale data centers, in particular, will see substantial increases in energy use as they support more complex and power-intensive tasks. Looking forward, we expect Hyperscalers to deploy data centers with 100 - 300 MW regularly, with occasional deployments 500 MW – 1 GW. In fact, Amazon recently acquired a site Pennsylvania capable of hosting a 960 MW data center, see the story here.
Sustainability Challenges and Opportunities
The rising energy consumption of data centers poses significant sustainability challenges. However, it also presents opportunities for innovation in energy efficiency and renewable energy integration:
- Energy Efficiency: Data centers are increasingly adopting energy-efficient technologies to reduce their power consumption. This includes the use of advanced cooling systems, energy-efficient servers, and optimized data center designs to minimize energy waste.
- Renewable Energy: Many data centers are turning to renewable energy sources to power their operations. For example, companies are investing in solar, wind, and even nuclear power to meet their energy needs sustainably. Connecting data centers to reliable and low-carbon energy sources, such as nuclear power, can help reduce their environmental impact.
The huge step up in energy needs is not well understood by the market and likely hasn’t been fully priced into the capital markets. We expect that Small Modular Reactors (SMRs) will increasingly be proposed as a potential solution to the increasing demand for power created by data centers.
Conclusion
As digital services continue to expand, the energy consumption of data centers will keep rising. Understanding the scale and growth of this energy demand is crucial for developing sustainable solutions. By focusing on energy efficiency and integrating renewable energy sources, the data center industry can meet its growing power needs while minimizing its environmental footprint.
For additional insights on data centers and energy consumption, explore the links below.
RESEARCH REPORTS:
Powering the Ai Revolution by Morgan Stanley, March 8, 2024
The 2023 U.S. Data Center Market Overview Report by Newmark, January 1, 2024
PODCAST | VIDEOS:
The Future of Data Centers: Innovations, Challenges, and AI-Driven Growth - This covers the role of AI, the challenges in power generation and supply, and the future growth and innovative prospects of the industry.
The Future Of AI, According To Former Google CEO Eric Schmidt - This interview covers the current state of Ai and where Eric Schmidt thinks it is going, including chain of thought reasoning, Ai Agents and text-to-action. Super interesting interview.
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