Global demand for data storage, processing and distribution is driving a rapid increase in power consumption by data centers. According to a 2023 report by the International Energy Agency, base case annual global electricity consumption for data centers, cryptocurrencies and artificial intelligence in 2026 is projected to exceed 800TWh – up from 460TWh in 2022.
A recent report from McKinsey suggests that global demand for data center capacity could rise at an annual rate of between 19 and 22 percent from 2023 to 2030. Emerging technologies like generative AI may compound that demand, with a ChatGPT search reportedly consuming up to 10 times more power than a traditional google search.
This rising power demand is creating three key challenges for digital infrastructure investors:
- Power prices have become increasingly volatile in recent years, driven by geopolitical events, supply chain disruptions and the transition to renewable energy. This price volatility makes it difficult for data center operators and their customers to forecast and budget their power costs.
- There is also a risk of power prices rising in the medium-to-long term. As demand for electricity continues to grow, particularly from the data center industry, supply may struggle to keep pace. According to Rystad, a consulting firm, $3.1 trillion of grid infrastructure investments are required globally before 2030. These grid expansion costs are likely to be passed on to consumers in the form of higher electricity rates, impacting data center operators and their customers.
- Grid investments are lagging behind increased demand for grid connections. Cleaner generation projects are already needed to replace more polluting sources, support electrification (such as the use of electric vehicles) and support natural population and energy demand growth. Pieter-Jan (PJ) Bouten, a senior managing director at Guggenheim Securities, told us that “the reality is that the grid cannot cope with the unprecedented demand we are seeing for data centers driven by AI. It is a core skillset of a data center operator to figure out ways of securing grid capacity. However, grid connection queues are becoming more and more an issue, and we see this already impacting investment opportunities and returns.”
