By Venkataraman Swaminathan, Vice President, Secure Power Division, Schneider Electric Greater India
Today’s digital economy is placing unprecedented strain on the power grid. A perfect storm of rising data center demand, aging infrastructure and lengthy utility approvals are major contributing factors, particularly in key data center markets.
As global IT demand soars to new heights due to rising AI workloads, expanding cloud services, and increased edge deployments, concerns are mounting that electric grids may struggle to keep up, potentially hindering data center growth. Additionally, calls for greater sustainability in the industry have never been louder. For years, efficiency gains and infrastructure optimisations kept data center electricity use relatively stable despite rising energy demands, allowing data centers to maintain net-zero ambitions. But with AI, cloud, and edge computing driving exponential data growth, forecasts now predict a sharp rise in power demand through 2030 that stands to change the industry’s previously positive energy consumption trajectory.
However, these challenges are not insurmountable. Navigating this power crunch requires proactive strategies — ranging from alternative power sources to infrastructure planning and software solutions — that can help data center operators secure capacity, build resilient facilities, and scale sustainably.
Factors Contributing to the Looming Power Crunch
Undoubtedly, one of the biggest contributors to data centers’ pressing power woes is the intense computational demands of AI applications. A single search on an AI requires around 10 times the electricity of a Google search, and forecasts suggest that AI and crypto mining could account for up to 10% of global electricity demand by 2030. Inference workloads, which are expected to consume much more power than training clusters, will increase over time as more newly trained models are transitioned to production, contributing to even greater energy consumption.
Additionally, the expansion of localised data centers and a growing number of IoT devices to achieve low latency is contributing to higher energy consumption and grid strain. The IEA suggests that “after globally consuming an estimated 460 terawatt-hours (TWh) in 2022, data centers’ total electricity consumption could reach more than 1,000 TWh in 2026,” which is roughly equivalent to the electricity consumption of Japan.
Overall, customer grid connection queues in energy-constrained regions now often span three to five years, driven by rising demand and the clean energy transition. It is forecasted that the global power demand from data centers will increase 50% by 2027 and by as much as 165% by the end of the decade, while some major data center hubs like Northern Virginia have announced additional grid connection delays of up to seven years for large data centers amid a surge in requests.
Given the systemic limitations on reliable power sources, practical solutions are needed. We must address power sustainability, upstream power infrastructure, new data center equipment and trained labor to deliver it all. By being proactive, we can “bend” the energy growth curve by decoupling data center growth from AI computing’s energy consumption.
Exploring Energy Procurement Strategies
Before the AI boom, large data centers could grin and bear longer lead times for utilities; however, the immediate and skyrocketing demand for data centers to power AI applications calls for creative solutions. Data center developers and designers planning to build in energy-constrained regions need to consider deploying alternative prime power sources and/or energy storage systems to launch new data centers.
This includes natural gas turbines, HVO-fueled generators, wind, solar, fuel cells, battery energy storage systems (BESS), and to a limited degree, small modular reactors. In their 2024 Midyear Global Outlook, BlackRock indicates both AI and low-carbon transition could spur historically large capital spending, as well as incremental investment to meet growing energy demand, with sources like solar farms, power grids, oil and gas expected to generate investment of US$3.5 trillion per year this decade.
To better understand the use cases for these technologies, two key scenarios are common for data centers trying to build in energy-constrained regions:
- Use Case 1: Electrical capacity exists, but to connect, the utility or grid operator requires the data center owner to agree to mandatory demand response and grid services participation.
- Use Case 2: Electrical capacity does not yet exist and there’s a need to build and operate before that capacity is available.
Use Case 1: When Capacity Exists but Requires Grid Flexibility
In this scenario, data centers must have enough on-site energy storage to be able to comply with grid operator requests to take the data center load off of the grid when directed. Traditionally, diesel generators serve as the backup to the utility with uninterruptible power supplies (UPSs) powering critical loads when power switches from the utility to the gensets.
But in localities where diesel powered gensets are limited — due to noise, air pollution or carbon emission concerns — more sustainable hydrotreated vegetable oil (HVO) fuels save the day as a sustainable alternative, reducing carbon emissions by about 90%.
Behind the grid, Lithium-ion battery energy storage systems (Li-ion BESS) can provide enough energy storage to meet grid operator requirements for demand response and grid services, providing five key outcomes:
- Additional backup power and greater grid independence
- Decrease reliance on diesel generators
- Market participation (grid services)
- Demand charge avoidance and time-of-use management
- Increased use of on-site renewables.
Use Case 2: When No Grid Capacity Exists and Power is Needed Immediately
In this case, data centers need to source alternative prime power sources taking into consideration reliability, fuel availability, environmental impact, maintenance, regulations, and construction.
In general, natural gas turbines are the most used prime power alternative in the short term thanks to the technology’s maturity, cost, fuel flexibility, reliability, deployment speed and scalability.
Fuel cells are another viable option and have lower emissions than natural gas turbines but come with their own set of challenges. Among those are cost, longer lead times (particularly for solid-oxide fuel cells), and difficulty keeping pace with load swings.
Small Modular Reactors — while still in the early stages of adoption due to regulatory hurdles, costs, and public concern over the use of nuclear energy — are another option hailed as a future solution due to their promise of constant, carbon-free energy in a company footprint.
No matter the prime power alternative chosen, natural gas turbines or fuel cells can be coupled with on-site renewables (wind or solar) and energy storage to increase resiliency, grid independence and optimise costs while reducing emissions.
Finally, larger data center providers could explore local microgrid providers to skip grid queues. These are companies with massive megawatt industrial parks that may already be grid connected with microgrids as a backup or they may be permanently islanded, offering power-as-a-service. Their expertise and established supply chains provide a viable alternative for data centers who need immediate power or just want to improve resiliency, sustainability and benefit from lower energy costs.
Additional Considerations: Utilities Partnership and Predictive Software
Outside of directly dealing with grid constraints through alternative power generation, operators can further ease the burden of building in power-constricted areas by partnering with local utilities.
The utility company and grid operator’s intimate knowledge of the grid and local regulatory, governmental and political landscape makes them critical partners in the site selection, design, permitting, and construction of new data centers. Utilities provide critical insights on power capacity, costs, carbon intensity, power quality, grid stability and load management to ensure sustainable and reliable operations.
Another step data centers can take to ease power sourcing burdens is leveraging advanced technologies like digital twins and energy management software. These tools allow for better forecasting of power needs, enabling more efficient cooling, load balancing, and overall energy management. As a result, data centers can significantly reduce waste, lower operational costs, and contribute to more sustainable operations while maintaining high-performance standards.
Conclusion: Next Steps for Data Center Operators
As data centers look to overcome a looming power crunch, operators must take important steps to ensure long-term sustainability and efficiency, including:
- Reconsider Site Selection: Prioritise power, water, space availability, and consider the latency/labor trade-offs to ensure scalability and resilience. Look for regions with reliable grids or opportunities for on-site power generation.
- Embrace Alternative Prime Power Sources and/or Energy Storage Systems: Considering natural gas turbines, HVO-fueled generators, wind, solar, fuel cells, and BESS is a crucial step for data center operators to ensure sustainability, reduce reliance on the grid, and enhance operational resilience.
- Collaborate Early with Utilities: Engage utility companies early to align on goals and expectations. This collaboration can help optimise energy use, improve grid stability, and uncover opportunities for shared infrastructure and demand response programs.
- Design for Sustainability: Incorporating sustainable design and renewable energy can reduce wasted energy, improve public perception, and help secure permits more easily.
While headlines may paint a picture of an impending “power crunch” to cripple data center growth, we argue for a more nuanced perspective. While a perfect storm of factors has strained or exhausted grid capacity in certain regions, data center operators who get ahead with innovative strategies will ensure long-term success.
