The “Power-full” Data Center Conversation Continues to Evolve

September 19, 2024 | The phrase “long pole in the tent” is often used when discussing the relationship between power and data centers.  In our conversations with both the platforms behind and management teams of data centers we are seeing a strong urgency to hire dedicated power teams.

On its recent earnings call, Oracle hammered on this point very hard.  Specifically, Oracle CEO Larry Ellison noted:

“…some of the most senior people in our management team are experts in building buildings, building electric power plants and electric transmission systems. Because building these data centers is just that. You can’t just build a data center, you also have to account for the energy and the transmission of the energy from where it’s generated to the data center. And of course, the most efficient way to do this is actually build the generation – the power generation plant right next to the data center, so you transmit over the shortest distance. And we actually have very senior people who are very – actually come from the utilities industry, as strange as that sounds, that are expert in doing this, and helping us build these gigantic projects.”

Such a strategy makes a whole lot of sense.  Data Centers these days are being built to support 1GW+ of power.  To put this number in perspective, the CNBC talking heads recently observed that 1GW of power is the power needed to support 750,000 homes….for a full YEAR.

Given the pressure on the grid, one data center CEO recently told to me that the main factor that will keep AI from living up to the hype is the power availability (or lack thereof…) and the limits it is putting on the rollout of the infrastructure needed to support Generative AI.

Simply put, data center operators need to show some ‘out of the box’ power thinking.   They have to. Just last week, Dominion Energy, the utility supporting the largest US data center market (Northern Virginia), announced it expects the time to connect large data centers to the grid to increase by one to three years, bringing total wait time to as long as (wait for it….) seven years!

In my day job, we are finding that the Digital Infrastructure team (of which I am a part of) is becoming fast friends with our internal power and utility group. Our data center clients are hungry to pick this team’s brains and think of alternative energy solutions.

We have begun to see nuclear quickly become part of the conversation.  The best example of the bridge between hyperscalers and the nuclear world was AWS’s purchase of the Talen Energy Corporation nuclear data center in Pennsylvania earlier this year.

More behind the meter solutions seem to be coming. This should not be surprising given the rise of GPU-centric AI data centers.  These facilities will use significantly more power than the typical hyperscale data center today.   To put this in perspective, Bloomberg reported that AI data centers have the capacity to consume a combined 508 Terawatt (TWh) hours of electricity per year.  Remember our math above around a Gigawatt?  Well 1 Terawatt = 1000 Gigawatts! These numbers are not small.

Oracle seems to have gotten the memo here. On the same earnings call, Ellison was clear Oracle is leaning in hard to the power issues noting:

“…we’re in the middle of designing a data center that’s north of a gigawatt, that has – the location and the power place we’ve located, they’ve already got building permits for three nuclear reactors. These are the small modular nuclear reactors to power the data center. This is how crazy it’s getting.”

Is this ‘crazy’ or amazing foresight?

Time will tell! One thing is very clear if GenAI is to thrive, the power piece of the puzzle cannot be ignored, and if anything, should be bear-hugged (very tightly!).

This communication is for information purposes only and should not be construed as investment, legal, audit or tax advice nor as a solicitation, offer, recommendation, or commitment to buy or sell any investment instruments, to effect any transactions, or to conclude any legal act of any kind whatsoever. We make no representation or assurance regarding the accuracy, completeness or suitability of the information in this communication and have no obligation to provide updates or changes. This information should not be used to make any investment decisions.

Please see https://www.mizuhogroup.com/americas/email-disclaimer and https://www.mizuhogroup.com/americas/disclosures for important additional disclosures and terms and conditions relating to this communication and your reliance upon the contents herein.

---