Challenges, Opportunities from Data Centers Adopting Renewables

In May 2024, Mexico stands out as an attractive hub for the construction of new data centers, thanks to its strategic geographical location, skilled labor force, and growing technological infrastructure. According to the Mexican Association of Data Centers (MEXDC), an increase in data center energy demand of up to 400% is expected by 2030, reaching 1,492MW/h. The country faces significant challenges in sourcing renewable energy. In this context, there is an opportunity to create new business models that not only offer reliable and low-cost energy but also significantly reduce the carbon footprint  

Economic and Technological Development 

Data centers are crucial infrastructures supporting everything from business operations to cloud services and entertainment platforms. Currently, Mexico has 166 operational data centers, consuming approximately 305 MWh, a figure considerably lower than the projections for the coming years. The Mexican Data Center Association (MEXDC) estimates an investment of $9.192 billion over the next decade to develop 75 new centers, underscoring their vital importance to the country’s digital economy. This growth in data centers is driven by the exponential development of artificial intelligence in recent years. For instance, Meta is constructing a new AI-focused data center in Indiana, valued at $800 million. Expected to be the size of 14 football fields, it will be one of the largest data centers in the world dedicated exclusively to artificial intelligence. One executive commented that 'only' two nuclear reactors would be needed to power it. 

In Mexico, a data center under construction by KIO Networks is projected to consume 40 MW. However, this size may seem modest compared to a planned data center by Amazon, which will involve an investment of $5 billion in Querétaro. 

It is estimated that the capacity planned by various companies for new data centers would increase the country's energy needs by 0.5%. While this increase might seem insignificant, it represents the energy consumption of a city like Cancún. 

Challenges for Integrating Renewable Energy  

• Infrastructure: Despite Mexico’s solar and wind potential, the existing infrastructure for distributing renewable energy on a large scale is insufficient, especially in areas where new data centers are being built. This June, new presidential elections will be taking place, and both candidates are considering significant investments in infrastructure upgrades. These investments aim to not only address the current deficiencies but also to support the anticipated growth in renewable energy production, ensuring that new and existing data centers can operate efficiently within a greener framework. However, the route still not very clear as some implementation challenges are evident. 

• High Initial Investment: Building renewable energy facilities involves significant investments. The high initial costs can be a hurdle for many companies that need quick returns and profitability. Innovative project financing structures are needed to solve the investment problem.   

• Variability of Renewable Energy: The reliance on sources like the sun and wind, which are intermittent by nature, presents a challenge for data centers that require a constant and reliable energy supply. Although these challenges can be overcome with battery storage, this latter needs even higher investment.  

• Regulations and Energy Policy: In Mexico, energy policies and regulations have been volatile, posing challenges for renewable energy investors. The country’s goal is to source 35% of its electricity from clean sources by 2024 as President López Obrador announced in June 2022. 

• However, recent policy changes have affected investor confidence and complicated investments in large-scale renewable energy projects, especially due to initiatives favoring the Federal Electricity Commission (CFE) as the primary electricity provider. Despite this, efforts are underway to modernize and expand the energy infrastructure, including transmission line projects under the National Electric System Development Program (PRODESEN), indicating a potential opening for public-private collaborations. 

Solutions and Opportunities  

1. Microgrids and Energy Storage  

Innovative trends, like the utilization of microgrids and energy storage, are pivotal in ensuring data centers can manage the intermittency of renewable energy sources. Mexico is witnessing significant investments in these technologies. The installation of microgrids allows data centers to operate independently from the national grid, ensuring reliability and reducing transmission losses. Energy storage systems, particularly batteries, are increasingly being integrated to store excess energy generated during peak production times to be used during lower production periods. This not only stabilizes the grid but also maximizes the use of generated renewable energy. For example: In Baja California, a pilot project involving a microgrid that integrates solar power and battery storage has been set up to support a local development. This microgrid is designed to provide uninterrupted power supply, reducing reliance on the main grid and ensuring stability despite the region’s frequent grid fluctuations  

2. Government Incentives  

The Mexican government has implemented several incentives to encourage the use of renewable energy in data centers. These incentives include tax exemptions, 100% accelerated depreciation in one year, and exemptions on import and export duties for some renewable energy technologies. In this context, companies like Finsolar offer flexible financing options designed to maximize the use of these incentives. 

On the other hand, through its Finsolar Inversiones division, the company stands out for offering unique and flexible financing models, such as RenovaFund, TotalSolar, and ExpandSolar+. These programs are specifically designed to facilitate the implementation of solar solutions, allowing businesses of all sizes to maximize the economic and environmental benefits of adopting solar energy.  

3. Strategic Collaborations  

Partnerships between technology companies and renewable energy providers are flourishing, driven by shared goals of energy efficiency and sustainability. These collaborations often lead to technological innovations that streamline the integration of renewable energy into data centers. For example, major tech firms are teaming up with local energy providers to develop bespoke renewable energy solutions that cater specifically to the high power needs of data centers.  

4. Innovation in Design and Technology 

There is a strong focus on incorporating advanced architectural designs and cutting-edge technologies to optimize energy consumption in data centers. Innovations such as using AI for energy management, advanced cooling systems, and building designs that naturally reduce energy use are becoming standard. These technologies not only enhance the operational efficiency of data centers but also significantly reduce their environmental impact. For example, In Querétaro, a newly designed data center utilizes an innovative cooling system that combines ambient cooling with advanced chillers optimized for low energy use. This system significantly reduces the energy required for cooling, which is one of the largest energy consumers in any data center.    

In Europe, an innovative and environmentally friendly approach to managing data center waste heat involves repurposing it to heat public buildings, residential areas, and even swimming pools. This technique not only improves energy efficiency but also contributes to a significant reduction in the carbon footprint of urban areas.   

For example, Stockholm is notable for implementing a district heating system that utilizes waste heat from local data centers. The heat generated from these facilities is captured and fed into a district heating network that provides heating to thousands of homes and offices. This approach is highly efficient, reducing the reliance on fossil fuels for heating and maximizing the use of generated energy.   

This innovation has potential for application in Mexico. Incorporating this waste heat recovery technology into data center designs could be particularly beneficial in the colder regions of Mexico, such as the northern states of Chihuahua and Durango, where heating demands are higher during the winter months. Capturing waste heat from data centers offers a dual benefit: it can significantly reduce heating costs in nearby areas while promoting sustainable energy use. This approach can indirectly increase reliance on renewable energy in data centers, provided that overall energy consumption decreases and the replaced energy sources are fossil fuel-based.  

The landscape of data centers in Mexico is rapidly evolving, not only in terms of expansion and technological capacity but also in its relationship with the environment. The integration of renewable energies is both a challenge and an opportunity to redefine the data center industry as a pillar of sustainability and energy efficiency. As Mexico progresses on its digital and technological trajectory, data centers will play a fundamental role not only in supporting digital infrastructure but also in promoting a sustainable and responsible energy future.