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Summary

Data centers consume more electricity than France

Data centers in the US make up 4% of the nation’s 2022 electricity consumption, according to the International Energy Agency. According to IEA estimates, data centers, cryptocurrencies, and artificial intelligence consumed about 460 TWh of electricity worldwide in 2022, almost 2% of total global electricity demand. 460 TWh is more than the electricity consumption of France in 2021.

The world’s electricity supply hasn’t increased yet

While electricity production has recently grown enormously in China, it has stayed flat in the EU, US, and Japan over the past 20 years. Building new generation capacity is complex and slow, and vast improvements in efficiency throughout the economy have enabled electrical utilities to plan for little or no change in demand. The fast explosion in power demands from data centers and other areas of the economy have changed this picture entirely. Utilities are planning and building generation and transmission. But turning the ship of electricity production to growth after decades of mostly flat demand has meant re-learning infrastructure expansion and permitting, so delivering the power data centers need is slower than required.

The Big 3 are on the hunt for electrical power

The cloud computing boom has set off a race for the world’s finite supply of electrical power. The Big 3 continue to expand their data center infrastructure, with new campuses underway that consume the electricity of a midsize city with a population of 1 million. While they are investing in projects to bring new power online with renewables, they rely on utilities to supply all the power they require. In some cases, they have reversed plans to decrease fossil fuel use.

Our position

Cloud service providers require additional electricity for their core business to survive, and it should be low-carbon. The Big 3 are well-positioned to get new low-carbon power plants built, and they need to resist pressure from utilities or politicians mandating gas plants as the only path forward.

Operating their data center infrastructure on low-carbon power is the only way the Big 3 can meet net-zero pledges in the face of exploding demand for cloud services. Utilities use the need for fast supply expansion to justify returning to more familiar gas plant construction. However, renewable power plants have an advantage in siting because they don’t pollute the air or water, and don’t require noisy trucks or unpopular pipes to deliver a nonstop supply of fossil fuel. And renewables win on the economics of a power plant’s lifetime: they don’t require the expense of purchasing fossil fuels.

Despite interconnection queues, political considerations, and sizeable capital expense, the Big 3 should commit and stick to this path.

More demand means large new facilities that need power

A global boom in cloud computing means the world’s technology companies are seeing fast growth in their cloud platform divisions.

As more companies migrate to the cloud and new applications drive usage and demand, cloud providers are banking on continued rapid growth. Generative AI (GenAI) multiplies the scope and pace of expansion. Learn more in “GenAI“

GenAI, with its specialty hardware and cooling requirements, requires almost completely new data centers. It could be tough for smaller cloud companies to meet these needs, making GenAI support a potential differentiator for the Big 3 cloud brands (AWS, Azure, Google Cloud). They have to move quickly to lock in their advantage.

The leading data center operators are building new and upcoming facilities that are enormous, with power draw on par with cities. This exceptional power demand, along with less well-known excessive water consumption, is making it hard to find locations where they can get the electricity they need.

Available electrical power for new data centers is tight

Data center companies and hyperscaler cloud providers are scouring the landscape for new spots to build bigger data center campuses. For customers that want minimal lag time when they use their cloud instance, sites have to be located near population centers with expensive land and constrained power and water. Siting new facilities has to trade off distance from customers with availability of adequate land and resources.

As a result, data centers cluster in favorable locations, and those locations are facing an electrical power crunch. The 80+ data centers in the Republic of Ireland consume about 28% of the country’s electricity — more than all its residential demand; leading the government to tighten criteria for permitting new projects. In 2022–2023, Dominion Energy in Virginia’s “data center alley” paused new data center connections to the power grid for three months while it caught up in transmission build-out.

Example: Google’s $1B Facility

Data center clusters make it hard to avoid carbon-intensive energy

Electrical utilities are exploring solutions to the problem of how to meet spikes in energy demand and overall demand growth in the near term. Some utilities are working on shifting the time or level of electricity use to reduce peak demand. And for example California’s Silicon Valley Clean Energy has a program working with manufacturers in its service area to implement energy efficiency improvements at appealing cost savings.

Demand response programs that reward companies and households for reducing their electricity use during demand peaks are growing quickly, and data center operators are starting to participate. Even more importantly, data centers — notably Google — are using their power storage capacity to become good neighbors by delivering power to the grid during crunch times, becoming virtual power plants.

But some utilities located in data center clusters have no choice but to build out new generation facilities. And many of them are appealing to legislators to roll back mandates for low-carbon power transition. They plan on building new gas plants, familiar infrastructure whose construction timeline is well understood.

A new gas power plant will operate, emitting greenhouse gas and pollution for decades — and cloud computing will be accountable for a share of that damage.

Public awareness of data center emissions has drawn regulatory attention

Regulators are examining data centers and instituting regulations around greenhouse gas emissions, power and water use. The European Union introduced new reporting requirements under its Corporate Sustainability Reporting Directive (CSRD) for data center energy use and greenhouse gas emissions. There is also a data center energy efficiency reporting requirement.

The EU Climate Neutral Data Center Pact is a voluntary agreement under which operators pledge to make their data centers climate neutral by 2030. The US SEC’s issued draft CDR rules that are in review and would standardize corporate climate disclosures and apply to data center operations. In Canada, the Net-Zero Emissions Accountability Act means that data centers will need to complete climate-related reporting. Japan also has financial reporting requirements around climate.

It’s hard to tell which low carbon cloud locations are reducing global emissions and which are shuffling existing renewable supply

The largest tech companies are the largest purchasers of renewable electrical power in the world. They have spent a great deal of money on long term contracts with existing renewables suppliers, and they have partnered with renewable energy developers and utilities to build new generation capacity.

These companies are using Power Purchasing Agreements (PPAs) to point to the new clean power generation facilities they induce to be built by guaranteeing they will buy enough power to make the facilities economically successful. It may not always be the case that they induce construction that would not have otherwise been done, but technology companies are among the biggest funders of renewables expansion.

The technology companies that fund renewable generation with PPAs account for the low carbon power against their corporate greenhouse gas emissions in their disclosures, to support their emissions reductions reporting. The power plants under PPA agreements may not be generating power in a location that allows for an explicit matching of the renewable power production to their data centers’ power consumption. And it is impossible for clean power to match every hour of a data center’s consumption because renewables don’t generate electricity 24 hours every day, so 40 – 70% of emissions match demand. A solution is to add to a PPA an energy storage system such as batteries.

The leading cloud providers are deploying their influence as large players in local economies and large power purchasers to urge utilities to move faster building out clean energy, such as by striking deals with private clean power developers. They are reported, as in The Wall Street Journal, to be exerting pressure on regulators and developers to strike deals with independent power producers.

In some locations cloud data center operators are building microgrids of renewable power from solar or wind paired with battery storage directly on their data center campuses. These power backups replace high emission diesel generators, and are increasingly becoming “good grid citizens” that deliver power back to the grid during high demand periods.

A data center’s power consumption will wax and wane and the pattern of its power consumption is not aligned with the power supply from the PPA-contracted plant. The result is peak demand in a fossil fuel grid that exceeds any delivery from the renewable plant elsewhere. Google is leading its cloud service category in its progress working toward “27/7 matching” to trace and prove that their data centers’ power consumption is consistently connected to their contracted renewable power supply. In some cases they have built data centers directly adjacent to clean power plants.

• Discontinue using inefficient on-premise and cloud services for your organization’s computing and storage
• Migrate to a hyperscaler cloud provider with the best PUE you can find
• Ask your cloud provider how they are reducing power consumption in their data center fleet
• Ask about and select low carbon locations for your cloud service, balancing latency and requirements
• Use virtual servers as much as possible
• Develop capabilities for running batch jobs at times or in locations with the most low carbon power
• Advocate in your industry for computing sustainability
• Advocate against utilities building new fossil fuel power-powered generation facilities
• Advocate for the Big 3 to continue building partnerships to develop additional renewable power plants