Soaring demand for power-hungry data centers squeezes governments and large tech firms between meeting their climate pledges and powering the AI boom. Hard choices await.
By Clara Riedenstein
December 10, 2024
Billions of euros of data center investments are pouring into Ireland, home to European big tech headquarters. But the centers gobble up energy, straining the country’s electricity grid. Irish lawmakers have responded by placing a moratorium on new data center projects until the end of the decade.
Both European and US governments and the leading cloud computing firms led by Google, Amazon and Microsoft, are struggling to keep data centers running without breaking their clean energy commitments. Under Donald Trump, the US is poised to speed up permitting for gas-powered centers. In contrast, Europe risks falling behind, widening the transatlantic competitiveness gap.
On both sides of the Atlantic, companies are making huge investments in wind and solar. Amazon entered a deal with investment firm Brookfield Renewable Partners to provide wind and solar energy to power Amazon cloud operations in Europe. Big tech companies are turning to nuclear. Even so, at least in the short term, it is unlikely that they can avoid upping their consumption of fossil fuels.
Data centers today consume only around 4% of the total energy supply in the US. By the end of the decade, that number is set to triple. AI innovation requires ever-bigger data centers with vast amounts of computing power. The bigger the data center, the more powerful the AI. On top of that, existing large language models like ChatGPT also need large facilities to run their operations and respond to queries. Roughly speaking, one ChatGPT query consumes as much energy as a lightbulb does in 20 minutes.
Companies are betting big on nuclear energy to solve this problem. While nuclear had become a less popular energy source in recent years due to high costs and regulation, many big tech companies are now investing heavily in the sector. Microsoft and Constellation Energy entered a power purchase agreement that would see the shuttered Three Mile Island nuclear plant in Pennsylvania re-open.
Investment is moving into new nuclear technologies. Companies are eyeing new designs that promise smaller, more modular nuclear plants. These come with the benefit of lower risks of construction delay and lower financing costs. Google recently signed an agreement with Kairos Power to invest in several smaller reactors, in an effort to accelerate the commercialization of this technology. Amazon is investing heavily in downsized nuclear reactors in the Pacific Northwest.
Big question marks remain. Small modular reactors are not yet deployable. Most of these projects have long time horizons, and critics argue change will not come swift enough. What is more, even when modular plants are deployable, the lower costs they promise will only kick in once economies of scale are achieved, leading to further delays in adoption.
The US is turning to gas as a holdover until more renewable sources become available. Big Wall Street firms recently announced a $50bn AI and energy investment strategy, which includes natural gas plants. This year is set to see one of the highest numbers of new gas-generation projects announced. The Trump administration has said it wants to streamline the construction of new AI data centers by boosting electricity production.
Reliance on fossil fuels opens firms and governments up to criticism. Neither the US nor the EU are on set to meet their ambitious climate targets. Big tech firms announced they want to be carbon negative soon. This seems unlikely if their newest tech boom is reliant on gas.
In the EU, some member states have explored new ways to mitigate the climate impact of new data centers. Excess energy from the centers is used to power greenhouses in the Netherlands and fish farms in the Nordics. It is also used to heat cities, if certain conditions are met. Danish company Danfoss is planning to heat Frankfurt with clean excess heat by the end of the decade.
While impressive, such proposals are likely to remain local and cannot be reproduced on a large scale. Excess heat from data centers can only be channeled into cities with centralized district heating, which Nordic towns have, but which few Southern European towns deploy. Europe faces a data center capacity shortage, which could wound its AI hopes. Data from Synergy Research Group reveals that the US accounts for 53% of global hyperscale data center capacity, while Europe constitutes just 16%, indicating a significant unmet demand in the region.
For now, governments and private companies looking to be at the forefront of AI face a dilemma between upholding their climate commitments, and powering innovation. So far, it looks like the US is willing to compromise its green ambitions for domination in AI. The EU seems to be moving in the other direction.
Clara Riedenstein graduated from Oxford University where she is now studying for a master’s degree in political theory while working as a research assistant with the Digital Innovation Initiative at the Center for European Policy Analysis (CEPA).
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
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