Written by Eric Bloom,
Re:Co's COO & Head of Client Solutions.
By any measure, the increase in power demand as a result of AI is staggering, creating complications for digital infrastructure investments and technology companies’ decarbonisation strategies. The International Energy Agency forecasts that data centre-related electricity consumption will roughly double from 2024 to 2030, a surge that is creating localized pockets of grid strain that is leading everyone from hyperscalers (i.e., Microsoft, Google, and Amazon) to the fast-growing AI and technology companies that depend on their services to reevaluate how to reconcile the ambitious decarbonisation targets that many of the hyperscalers have with voracious appetites for energy that, in many grid regions, cannot be readily met through available resources, and yearslong queues to bring new resources online.
With intense interest in private markets in adapting existing companies to AI and investing in fast-growing companies, it’s as important as ever to understand the implications of the current AI surge for private market investors.
For infrastructure investors, the coming years are poised to see significant growth in digital assets. Staying ahead of the curve in offering digital services powered by clean energy stands to differentiate one provider’s data centres in a competitive market. The standards determining what constitutes sustainability leadership in data centres continue to become more rigorous; whereas a data centre whose electricity consumption was covered under a renewable virtual power purchase agreement (VPPA) may have been sufficient in the past, hyperscalers and others are increasingly moving toward 24-hour carbon-free energy, or clean energy that matches needs on an hourly basis. Achieving this in a constrained market has led to some surprising headlines, such as Microsoft signing a 20-year power purchase agreement (PPA) for nuclear energy at the notorious Three Mile Island site in Pennsylvania. However, there are myriad other ways that digital infrastructure developers have an array of innovative approaches at their disposal to meet clean energy goals, whether through clean energy microgrids, efficient computing, or others.
For private market investors investing in AI and technology companies, it’s not too early to begin considering how companies’ platforms are powered. While tech companies’ Scope 1 & 2 operational emissions may be low, their Scope 3 value chain emissions may be driven in large part by their digital footprint. While some hyperscalers have validated near-term decarbonization targets under the Science-Based Targets Initiative (SBTi), not all do (Amazon’s target was dropped in 2023, for example), complicating technology companies’ abilities to lean on their digital services suppliers to support their own decarbonisation target-setting ambitions. Factoring suppliers’ decarbonisation and renewable energy approaches should be considered alongside other factors during the procurement process. In addition, there may be other levers to consider such as efficient code or carbon optimisation (as offered by Microsoft Azure). A holistic view of these considerations throughout the investment cycle stands to futureproof investments and differentiate against peers as awareness of AI’s greenhouse gas implications rises.
Written by Eric Bloom,
Re:Co's COO & Head of Client Solutions.