The demand for datacenter facilities is witnessing a significant surge as they become the backbone of the rapidly expanding digital economy.
The above chart from Synergy Research Group shows data center capacity trends in the future.
The latest IDC report reveals that this surge is fueled by both increasing demand for digital services and rising operational costs, particularly electricity.
Datacenters are projected to remain a key focus for investment, but the increasing price of electricity and growing energy consumption, especially due to energy-intensive workloads like artificial intelligence (AI), are driving costs up.
AI spending
AI spending is expected to double to reach $632 billion by 2028, according to another IDC report. IDC expects GenAI spending to reach $202 billion, representing 32 percent of overall AI spending.
EIA expects electricity demand will be about 2 percent higher in the second half of 2024 than in the same period of 2023 mainly due to growing demand from data centers.
Electricity constitutes the largest ongoing operational expense for datacenters, accounting for 46 percent of total spending in enterprise facilities and 60 percent in service provider operations.
As AI adoption accelerates, the energy demand for AI workloads is projected to grow significantly, with datacenter capacity supporting AI workloads expected to have a compound annual growth rate (CAGR) of 40.5 percent through 2027. Correspondingly, AI-related energy consumption will rise at a 44.7 percent CAGR, consuming a large portion of total datacenter electricity.
datacenter electricity consumption
IDC forecasts global datacenter electricity consumption to more than double between 2023 and 2028, with a five-year CAGR of 19.5 percent. The total energy consumption is expected to reach 857 Terawatt hours (TWh) by 2028.
Electricity prices are increasing due to factors such as geopolitical events, environmental regulations, and extreme weather patterns exacerbated by climate change. As a result, datacenters are becoming increasingly expensive to operate, with IDC projecting electricity spending growth rates exceeding 15 percent CAGR in several key markets, including the U.S., Germany, and Japan.
energy efficiency measures
To counteract rising costs, the IDC report recommends investing in energy efficiency measures such as advanced cooling technologies and improving chip performance. Furthermore, a focus on renewable energy, particularly solar and wind, is suggested to offset operational costs while supporting sustainability goals. By locating datacenters near renewable energy sources, operators can reduce both energy distribution losses and construction costs, improving overall efficiency and resilience in the face of rising grid instability.
The surge in spending on datacenter facilities reflects the critical need for energy-efficient operations and a sustainable energy future in a digital-first world, driven by AI and increasingly digital workloads.
Data center deals
Data centers are expected to account for 8 percent of the power generated in the U.S. by 2030, compared with 3 percent in 2022, according to a Goldman Sachs report in May.
Meanwhile, Reuters news report has revealed a summary of data center deals with utilities to power AI operations.
Constellation Energy (CEG) – Signed an exclusive deal with Microsoft to provide 835 MW of energy to data centers by restarting one of the Three Mile Island nuclear plant units.
Ameren (AEE) – Secured a deal with a data center for 250 MW of power and added 85 MW for smaller data centers and industries across Missouri and Illinois.
Alliant Energy (LNT) – Executed multiple power supply deals with data centers but did not disclose specific details.
Exelon (EXC) – In the engineering phase for more than 5 GW of data center capacity, with data center customers placing deposits for ComEd’s transmission infrastructure.
American Electric Power (AEP) – Signed letters of intent to provide an additional 15 GW of data center power by the end of the decade.
Xcel Energy (XEL) – Agreed to supply power to Meta Platforms for a data center in Minnesota, expected to be operational by late summer 2025.
Entergy (ETR) – Received legislative approval to invest in transmission and generation to support Amazon AWS’ upcoming facility in Mississippi.
Pinnacle West Capital (PNW) – Has commitments for over 4,000 MW from data center customers and a backlog of over 10,000 requests.
AES (AES) – Signed a 310 MW agreement with Google to support its Ohio data centers, with an additional 727 MW deal in Texas under a 15-year power purchase agreement.
Talen Energy (TLN) – Announced a deal to power Amazon AWS’ 960 MW data center campus in Pennsylvania.
NextEra Energy – Added 3 GW of renewable and storage projects, including Google’s demand for 860 MW to power its data centers.
Baburajan Kizhakedath
