[Global Focus] Surging Electricity Demand Amid AI Boom... Big Tech Faces Urgent Power Supply Challenges

The artificial intelligence (AI) industry, which has recently captivated investors worldwide, is facing a slowdown. This is due to the exponential increase in power demand caused by the rapid expansion of data centers, essential infrastructure accompanying the AI boom. Countries facing power shortages because of these data centers, often called "electricity guzzlers," have started imposing regulations, and big tech companies are actively seeking stable power supply solutions. In particular, forecasts suggest that fossil fuel supply will become crucial as excess power demand is expected to exceed what renewable energy can handle.

To develop high-performance AI such as large language models (LLMs), well known to us through ChatGPT, infrastructure capable of storing astronomical amounts of data and training models on it?namely data centers?is essential. Along with the generative AI boom, cloud computing and cryptocurrency mining have also surged, causing the number of data centers to increase exponentially, currently approaching about 8,000 worldwide.

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The problem lies in the power consumption of these data centers. AI data centers consume several times more power than regular data centers and require vast amounts of water to cool the generated heat. According to the International Energy Agency (IEA)’s "Electricity Report 2024," the total power demand of data centers, which accounted for 2% of global electricity demand in 2022, is expected to more than double by 2026, matching the entire power demand of Germany. Additionally, it is analyzed that by 2027, global water consumption by data centers will reach half of the annual water consumption of the United Kingdom.

Moreover, the AI-dedicated data center construction project "Stargate," reportedly being pursued by Microsoft (MS) and OpenAI with an investment of $100 billion (approximately 135 trillion KRW), consumes 5 gigawatts (GW) per hour. According to French energy solutions company Schneider Electric, this exceeds the total power currently used by all countries worldwide for AI (4.3 GW).

In the United States, which holds about one-third of the world's 8,000 data centers, power supply shortages are already occurring. According to a Washington Post (WP) report on the 7th of last month (local time), industrial power demand in Georgia has surged to an all-time high, and new power usage over the next decade is expected to be 17 times the recent level. Additionally, Kansas, Nebraska, Wisconsin, and South Carolina are delaying the closure of coal-fired power plants to cope with power shortages, while northern Virginia and Texas are also considering measures to address power crises. In Georgia, where companies were promised cheap and stable power supply, there are calls to halt subsidies for attracting data centers as power demand growth has exceeded expectations.

The bigger issue is that the U.S. government wants eco-friendly energy to combat climate change. The Biden administration has set a goal to eliminate greenhouse gas emissions in the power sector by 2035. Due to massive renewable energy subsidies under the Inflation Reduction Act (IRA) promoted by the Biden administration, fossil fuel and nuclear power plant operators have found it difficult to compete in wholesale power markets. Approximately 20 GW of fossil fuel power, including a large natural gas power plant in Massachusetts that has played a crucial role in responding to U.S. cold waves, is scheduled to be retired over the next two years. This amount is sufficient to supply power to 15 million households in the U.S.

The situation is similar in other countries. Ireland, which attracted about 140 data centers based on low corporate taxes, saw data centers consume one-fifth of national power consumption and introduced an emergency program last winter to temporarily suspend power supply. Recently, it also rejected new data center construction projects by companies such as EdgeConneX and Equinix in Dublin.

At the European Union (EU) Energy Ministers meeting held in June 2022, Luxembourg, the Netherlands, Belgium, Germany, and Denmark agreed on strict energy efficiency compliance requirements for big tech data centers within the region. This decision was based on the judgment that the massive power consumption of data centers hinders the EU’s goal of achieving a 45% share of renewable energy by 2030. These five countries plan to introduce strict reporting requirements regarding data centers’ power efficiency, carbon emissions, renewable energy usage, and water consumption.

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Big tech companies, facing emergencies in stable power supply, have begun taking measures. Microsoft (MS) and Google are considering installing small modular reactors (SMRs) near data centers and factories to supply power. MS has also signed a power purchase agreement with Helion, a zero-emission nuclear fusion energy research company.

Last month, Amazon purchased a 100% nuclear-powered data center in Pennsylvania for $650 million and signed a 10-year exclusive power contract with a nearby 2.5 GW nuclear power plant. It also plans to convert backup generators at all its European data centers to biofuel made from waste oil as soon as possible.

As securing stable power becomes a key issue in AI industry competition, fossil fuel companies are envisioning a rosy future. Although the Biden administration provides massive incentives for clean energy development to decarbonize the power grid, it is believed that renewable energy alone cannot handle the year-round stable power supply required by data centers.

Toby Rice, CEO of EQT, the largest natural gas producer in the U.S., predicted that "the AI boom would be impossible without gas," foreseeing great opportunities for the U.S. shale gas industry. He also explained, "We have recently received inquiries about natural gas purchases from tech companies building data centers," adding, "They do not have the luxury of waiting for cost efficiency improvements in renewable energy or the infrastructure development of nuclear power plants."

Doug Kimmelman, founder of Energy Capital Partners, which holds both green and fossil fuel strategic assets, evaluated that "gas is the only energy that can provide the power big tech companies need 24/7 year-round." Colin Grooding, vice president of Enbridge, also diagnosed that "(the AI boom) is a good sign for gas consumption," adding, "intermittent renewable energy is not sufficient."

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