The rapid advancement of artificial intelligence (AI) and the proliferation of digital services have led to a significant surge in data center demand, with investments projected to reach $1 trillion by 2027, impacting electricity consumption in the United States. This growth trajectory, while indicating technological progress, also presents significant challenges in terms of energy consumption and environmental impact.

According to a large investment banking company, data centers could account for up to nine percent of future US electricity demand. The increasing reliance on data and digital services, and industrial reshoring or manufacturing activity, has been fueling this growth, even before the recent AI boom. Navigating this complex landscape will often require close collaboration between data centers and utilities.

The drivers of data center growth

Even if AI turns out to be less power-hungry than initially expected, data center energy use will likely continue to rise due to several key factors:

• Rising Internet use, streaming, cloud computing, and IoT devices are driving global data demand. Businesses are moving operations to the cloud, needing more computing power and storage.
• AI applications are expanding across industries like healthcare, finance, and logistics. Despite efficiency improvements, the growing number of AI-driven processes can still increase overall energy consumption.
• Growing demand for Edge computing, more data centers are being built close to end-users to reduce latency for real-time applications like autonomous vehicles, smart cities, and industrial automation. These smaller Edge data centers collectively increase overall energy consumption.
• 5G and IoT can create vast data, demanding more storage, computing power, servers, cooling infrastructure, and power in global data centers.
• The increasing demand for cooling systems, networking hardware, and redundancy systems still consumes significant energy. Liquid cooling and advanced methods help, but also require power.

Efficiency improvements can slow the rate of increase but may not fully offset the global demand for computing power.

Strategies for sustainable growth

To effectively address the escalating energy demands of data centers, stakeholders should consider three key factors:

1. Achieving net-zero targets requires utilities to diversify energy sources:

Natural gas can significantly power data centers, but alternatives like battery storage, geothermal generation, and fuel cells should also be considered. These technologies can be a bridge to long-term grid solutions, aligning modular demand with distributed generation, which is crucial for sustainability and a stable power supply.

Nuclear power could also be an essential component of the US energy future, offering reliability, low carbon emissions, and scalability. As data center and AI-driven power demand continues to surge, nuclear energy—particularly through small modular reactors (SMRs) and next-generation reactors—can help meet these needs without exacerbating climate challenges or overburdening the electrical grid.

2. Enhancing data center infrastructure:

The pace of data center construction is outstripping the ability to deliver new power infrastructure. To address this, utilities and data centers should streamline their interactions. Companies are not waiting for utilities to solve supply-side challenges and are exploring demand-side solutions, such as on-site generation and relocating to areas with available power. Collaborative planning and agile infrastructure development are essential to align power delivery with the rapid construction of data centers. By fostering relationships and engaging in proactive stakeholder engagement, utilities can better meet the escalating energy demands of the AI era.

3. Planning and forecasting:

Specialists warn about a potential AI bubble and the overbuilding of data centers. Integrated resource planning and dynamic forecasting are crucial to managing demand volatility. Utilities should evaluate technology and industrial customers carefully to avoid unnecessary costs.

Leveraging technology and forming relationships can help align data center growth with real demand.

The expanding footprint of data centers

Beyond power consumption, data centers contribute significantly to job creation and economic growth. A PwC study found that data centers provide a sixfold multiplier of indirect or induced jobs for every direct job. Coupling data centers with a larger industrial base can address citing needs and create strong economic hubs. Data centers can also help alleviate grid congestion and become load-balancing assets over time.

While there may be resistance from data center customers to adjusting IT capacity, achieving load flexibility during peak seasons is possible. This requires a mix of engineering, operational, and commercial solutions, such as data center virtualization, leveraging backup generators, and creating incentivized market participation contracts.

Utilities should navigate opportunities and risks as they manage current demand and attract new data center customers. They should leverage the technology sector's scale and capabilities and evaluate five key areas: integrated resource planning, capital project delivery, customer management and business partnership, external stakeholder engagement, and clean energy transition and reporting.

Integrated resource planning involves dynamic forecasting and balancing to handle demand volatility. Capital project delivery focuses on improving capital portfolios and extending generation or transmission, and distribution assets.

Customer management requires evolving engagement into business partnerships for long-term planning, while external stakeholder engagement aims to enhance grid reliability and affordability. Collaborating with customers on sustainability goals is often crucial for the clean energy transition.

Adapting to our new energy future

The data center surge presents both challenges and opportunities for the electricity grid and broader economy. As demand for data centers grows, utilities and companies should adapt to new market dynamics and explore innovative solutions to meet energy needs.

By focusing on integrated planning, leveraging technology sector capabilities, and fostering relationships, stakeholders can navigate the complexities of this evolving landscape.

The potential for data centers to contribute to economic growth and grid stability underscores the importance of strategic planning and collaboration in addressing the demands of this new era of load growth.