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Digital developments in focus
| 4 minutes read

Who’s got the power?  The paradox of power-hungry data centres

As the world grapples with fuel shortages, increased and volatile energy prices and an urgent need to transition to renewables, Governments and regulators across the globe continue to turn their lens on data centres and other digital infrastructure providers.  But data centres’ role in current power shortages and the energy transition more broadly is far more complex than headlines might suggest.  So where might the solutions lie?

Since ChatGPT burst onto the scene in late 2022, adoption of (and investment in) generative AI technologies has exploded across the globe.  Mass adoption of AI is only adding to what was already massive demand for data centre capacity - in order to train and run models, AI technologies need access to low-latency networks, huge amounts of computational power and vast storage space.  In addition, consumer-facing AI and new utilisations coming out of that, and continued “standalone” 5G roll-out, is driving a need for edge data centres, which again need power.  This in turn will drive up data centre energy consumption, putting pressure on national grids and other power sources.  The International Energy Agency estimates that, by 2026, data centres’ energy demand across the globe will roughly equal Japan’s.  This has resulted in Governments in Singapore, the Netherlands, Ireland, Germany and China already imposing restrictions on new data centres in recent years, in bids to control the demand on electricity grids and safeguard progress towards climate targets. 

The Paradox

It’s an easy “problem” to articulate and statistic to quote.  But our view is that the position is much more nuanced than that.

As economies become increasingly digitised, data centres are a critical piece of the digital value chain.  Modern society relies on the secure and reliable storage and processing of data, and data centre infrastructure underpins technological development and innovation.  Governments worldwide now recognise data centres as being crucial to national security and the backbone of the digital economy and its growth.  Whilst data centres’ energy demand is huge, Governments are therefore keen to ensure that regulation doesn’t unduly stall or hinder that infrastructure.

In addition, although data centres’ energy need is huge, data centre operators are arguably key players in the energy transition.  Hyperscalers like Amazon, Google, Meta and Microsoft have effectively underwritten crucial renewable energy projects over the last couple of years by purchasing PPAs (which guarantee a fixed revenue stream and thereby often help developers to secure funding for a project).  Data centre operators are also investing in innovative technologies that recycle excess heat and give capacity back to the grid – waste heat from a new Microsoft data centre in Denmark due to open later this year is set to power 6,000 homes.  Perhaps the biggest paradox of all is that the same AI technologies that are driving up data centre demand and energy consumption are also already being used to improve data centres’ efficiency and resource management: Google says it is leveraging AI to shift non-urgent workloads between data centres depending on the availability of renewable energy on the grid, and Siemens’ “White Space Cooling Optimization” uses AI to predict heat loads and apply cooling to racks only when necessary.

So, what lies ahead for data centre operators?  Notwithstanding the points we make above, the direction of travel does seem to be towards focus on zero-emissions pledges, and so we expect more Governments and regulators to start imposing or increasing restrictions on new builds – whether as blanket moratoria (like Singapore’s recently-lifted pause on new sites) or as minimum environmental requirements for new data centres to meet.  The approach will differ by Government, but we’d expect to see a mix of Governments refusing grid connections for new sites or permits for new centres (particularly in residential areas), requiring centres to “give back” to the grid, meet emissions targets and/or reuse waste energy and heat. 

The Solution?

And so to the key question – what is the long-term solution?  Unfortunately, there isn’t a silver bullet on the horizon any time soon.  Instead, the need to make incremental changes and developments on both sides of the equation is going to be key.

Data centre operators will need to continue to innovate – on-site generators and new technologies like battery energy storage systems are already allowing centres to give back to the grid.  New off-grid solutions are making rural data centres with unreliable or even no grid connection feasible – and, whereas hubs have typically been concentrated in areas with converging fibre routes, optimal climates and skilled workforces, we think new hubs could emerge in places like Iceland or Scotland where renewable energy is readily available.  

We also think the need for reliable and uninterrupted power will continue to see data centre operators leading the charge in investments in renewable energy sources.  Microsoft took a bet on Helion Energy last year, signing the world’s first purchasing agreement for power generated by nuclear fusion, and we think we’ll continue to see exciting partnerships between data centre operators and renewable energy players in the coming years.  

Some are even looking skywards for the long-term: Florida-based Lonestar Data Holdings raised $5million in funding last year to explore the possibility of data centres on the moon, and the European Commission’s ASCEND (Advanced Space Cloud for the European Net-Zero Emissions and Data Sovereignty) study is currently tasked with assessing the feasibility of solar-powered data centres in orbit!

But there will need to be balance, and if Governments truly want to fuel the ongoing digital economy and transformation, there will need to be acceptance that this is a gradual process and that stringent measures could restrict that process and risk impacting innovation and growth.

Meeting climate commitments and facilitating technological innovations are key objectives for Governments across the globe.  Wherever the power comes from, we think that navigating the (potentially short-term) tensions between those objectives over the next couple of years will require true partnership and collaboration between Governments and data centre and other digital infrastructure operators.

Slaughter and May’s Tech, Digital and Data practice, together with its IEN practice, advise the full spectrum of digital infrastructure companies.  For more information, please see our website and/or contact James Cook, co-head of our cross-practice Technology Group.


ai, digital infrastructure