Data centres to drive up power demand, prices
- 14 October 2024
Standby for higher power prices in Europe, Australia and potentially the US, too, driven by “the world’s hunger for data” and a return to growth for recent backward-trending power demand.
US investment bank Morgan Stanley says “an accelerated urgency” around delivering infrastructure for growing global data needs, turbocharged by artificial intelligence (AI), should drive circa-20% compound average growth rate (CAGR) in data centre demand from 2024 to 2027.
“The emergence of data centres as a key secular trend comes with various implications across many industries, with one major sub-theme being the rising demand for power. At the core of this new power demand is the power intensity of the new AI chips (GPUs),” the bank says.
“NVIDIA's H100 GPU requires 75% more power than the prior GPU.”
Morgan Stanley is predicting a base case c105% CAGR in power demand for GenAI between 2023-27, with total global data centre power demand growing at a 20% CAGR over this period.
“The energy debate has thus emerged as a critical aspect surrounding data centre expansion,” it says.
“Energy costs represent approximately 45% of data centre operating expenses, with energy demand also extremely concentrated to local areas.
“In addition to the accelerating build out of new AI data centres, refits of existing legacy data centres will also come with higher power requirements.”
Analysts said European data centre capacity could grow by c6 times by 2035, including c18% per annum over the next five years.
“The US, which is relatively more saturated, would still require growth of more than two-times data centre capacity by 2035.
“Morgan Stanley has also identified Australia as a top-five data centre hub and has presented scenarios that suggest data centres could end up consuming c8% of the Australian power supply by 2030 [currently c5%],” Morgan Stanley says.
“Anaemic growth in power demand over the last decade could now give way to a rise in electricity demand from data centres.”
The bank says the data centre build requirement in Europe, in particular, “is significantly underestimated by investors”.
“This is not just about the emergence of generative AI, where continued demand for cloud computing also remains a significant long-term driver.
“Behind cloud and AI there is also the emergent driver of demand in data sovereignty.
“In the case of Europe, the growth drivers are split c60% cloud, c25% AI, and c15% data sovereignty.”
Data centres could also spur an increase in grid network connection spending of c4x in Europe by 2030.
While data centres currently use about 1.5% of energy globally, Morgan Stanley is predicting demand growth from about 430 terawatt-hours in 2024 to 748TWh in 2027, or maybe 4% of 2027 total global power use.
It says data centres could drive an inflexion in power demand.
In Europe, where power demand was 7% lower than 10 years ago, data centres could account for c160TWh of incremental power demand by 2030 and about 8% of total European power consumption by 2035.
“Higer power demand could mean higher power prices, and potentially upside for power generators.
“The European research team’s work on the impact of data centres has suggested that power demand from new data centre power demand could represent a €5/MWh tailwind for European power prices by 2030.
“Securing available, affordable, reliable and particularly renewable energy sources has effectively become an arms race lead by data centre hyperscalers [such as] Microsoft and Amazon.
“Given Big Tech companies’decarbonisation targets, Morgan Stanley thinks data centres’ power demand could require c100GW of new wind and solar projects by 2035 in Europe … implying €115 billion of capex.”
Meanwhile, US energy utility company Constellation Energy’s recent 20-year power deal with Microsoft to use nuclear power from its Crane Clean Energy Centre (aka Three Mile Island) signalled a c$50/MWh premium to the $45-55/MWh power price level in the market.
“During this year’s Edison Electric Institute conference, to be held in November 2024, we believe we could see multiple large US utilities increase their projected capex on the power grid,” Morgan Stanley says.
The bank sees “multiple signs of growing strains on the power grid, driven by meaningful demand growth after a 15-plus-year period of essentially no growth and extreme weather”.
