Electricity Demand: Challenges, Solutions in Powering Data

The use of artificial Intelligence is rapidly being embraced in both business and personal applications, increasing power use dramatically. For example, a sole ChatGPT question requires 10 times more electricity than a Google search. Because technology is multiplying energy consumption at this degree, the data center industry is beginning to present challenges in this regard around the world. Data centers are large climate-controlled installations filled with infrastructure and equipment that store information systems and collect and process large volumes of data. The increase in data globally is requiring the development of new data centers. Intensifying the use of data, means exponentially increasing power demand, which creates the first challenge. Second, because this industry is technology-oriented, the augmented use of AI within those data center operations will again magnify electricity consumption. AI is expected to represent roughly 20% of data center electricity consumption by 2028.  

There is a third and fourth challenge. This industry is pressured by its clients, investors and governments to reduce its carbon footprint by consuming renewable energy. Experts calculate that the rise in carbon emissions will represent a social cost of US$125-140 billion. Additionally, data centers require the implementation of power reliability solutions since data is so critical for third-party operations. These data centers are providing data services to some of the most valuable companies in the world, including  Nvidia, Amazon, Apple, Microsoft, Alphabet and Meta. 

Globally, the data center industry has grown considerably. Last year’s market size was valued at around US$220 billion, with projections to close at US$243 billion in 2024 and to rise to US$585 billion by 2032. In fact, according to CBRE, primary markets experienced the largest number of data center constructions in history during the first half of 2023. Today, Mexico hosts around 200 data centers that are either active, in construction or in development, sitting within the Top 11 countries in terms of relevance. The country´s data center market is projected to grow considerably. The Mexican Association of Data Centers estimates a potential direct investment of about US$9 billion by 2029 if appropriate conditions are met regarding factors such as energy availability. These numbers do not consider contingent investments for equipment such as hardware and software required at these new data center developments, which would augment the potential indirect investment to US$24 billion and contribute to employing around 70,000 people. 

Over the last several years, energy demand in Mexico has experienced a 3-4% annual growth, as COVID brought a deceleration in activity, while the economy also experienced an initial acceleration of the nearshoring effect. However, only lately have many data center companies been either setting up or expanding their operations in Mexico. If this is only the beginning what will happen to energy demand? 

Global electricity demand is expected to grow by 4-4.5% in the coming years, while the International Energy Agency (IEA) expects data center energy consumption specifically to double from 2022 to 2026. Currently, there are about 12,000 data centers globally, which together consume about 1% of the total global electricity demand. According to Cushman Wakefield, data centers worldwide increased electricity consumption by 55% from 2022 to 2023. There are regions in the world, like Europe, where data centers have geographically concentrated, projecting a surge in electricity demand by an estimated 40-50% in the next 10 years. According to Goldman Sachs, by 2030, the electricity requirements for these European-based data centers will be equal to the current total consumption of Portugal, Greece, and the Netherlands combined. In Mexico, current data centers consume around 110MW, with projects in development requiring another 300MW and at least another 1,480MW by 2029.

To support this increase in demand, investment in transmission and distribution infrastructure is critical. Regulators and business leaders must work together to develop long-term plans that consider modern-day trends such as the use of cloud storage, crypto mining, generative AI and the countless number of applications that exist and that will eventually develop in the future, including industrial manufacturing, telecommunication services, banks, government, retail and personal use. ChatGPT alone has 180.5 million users. The use of data and AI’s energy consumption is bound to intensify.  

Rather than limiting the development of new data centers, or impeding innovative solutions coming from the storage, analysis and interpretation of data, it is imperative to recognize the need for energy solutions that will permit these entities to generate efficiencies for others. Considering Mexico’s challenges on grid stability and sufficiency, the data center industry will need support to have access to: 1) enough electricity supply and infrastructure 2) renewable energy 3) cost-efficient tariffs 4) supply reliability. These four elements are critical to ensure businesses in Mexico remain physically viable and economically competitive. Energy is one of the top costs for data center operations. 

Data centers are investing heavily in combating climate change based on their businesses’ impact. In Mexico, companies are acquiring clean energy through Power Purchase Agreements and complementing them with on-site generation and I-REC instruments to offset their carbon footprint. As a result, it has become challenging for these companies to navigate the complexities and evolution of the market, regulations and politics and frequently require support from consultants to support their analyses of alternatives in both strategy creation and implementation. 

Mexico’s new government administration will need to understand the complexities of modern business practices and support this industry, which in turn will create improved efficiencies and innovation in the near term and beyond. The data industry carries a pivotal role in the era of digitalization and will be critical to ensure Mexico remains competitive and relevant globally.