Investors just can't pull the plug despite datacenters facing AI power crunch

Even if 98% say they're worried about energy availability and reliability

Investors are increasingly concerned about the availability and reliability of power for datacenters, yet most are still confident that investment in the sector will expand over the next several years, driven by demand for AI and cloud services.

Operators of data facilities face a growing number of challenges, not least of which is getting enough power for expanding their infrastructure or building new sites, as The Register has detailed in various articles over the past year or so.

But a report from law firm DLA Piper claims that 70 percent of investors expect to see funding continue to rise for bit barn projects, including debt. This is despite almost every single one of them – 98 percent of respondents – voicing concerns about the availability and reliability of power to supply those projects.

The report is based on research carried out by TMT Finance during Q3 2024, which surveyed 176 senior executives across the datacenter ecosystem, including those working for financiers, consultants, and operators.

It estimates that the global bit barn market is worth about $300 billion in 2024, and forecasts a compound annual growth rate (CAGR) of 10 percent over the next five years, resulting in a valuation of $483.15 billion by 2029. However, some survey respondents indicated that they expected to see investments rise by more than 50 percent.

Not surprisingly, the vast majority of those responding (97 percent) say that AI is the driving force behind demand for datacenter infrastructure, primarily via machine learning and natural language processing. Only 3 percent believe that demand is set to stay the same or decrease.

In the report, DLA Piper highlights the scale of some of the challenges. It says that utility companies in the US are being flooded with power delivery requests for sites marked for datacenter construction, but that they are unable to fulfill many of these until the 2030s.

In response, it says utilities are requiring large upfront non-refundable payments from investors in such sites, plus a commitment to use that power. It also claims utilities are getting developers to pay upfront for critical infrastructure such as substations that are needed to bring power to the site.

DLA Piper cautioned that investors and developers should be prepared to see this last trend start to be replicated in other regions.

This chimes with recent analysis by management consultancy Bain & Company, which warned that American energy companies needed to adapt to the AI-driven datacenter boom by ramping up their capacity, or demand would outstrip supply within the next few years.

Another recent forecast said that US residents could face a 70 percent hike in their electricity costs by 2030 unless urgent action was taken to boost generation and transmission capacity.

DLA Piper's report details some of the mitigation strategies that data dormitory operators can employ to address these energy challenges. In the short term, capacity rationing may be inevitable, it says, with temporary limits to the number of new projects in order to manage existing resources effectively.

It also suggests negotiating contracts with utility providers, including so-called take-or-pay provisions, can help secure power commitments and alleviate risks associated with supply constraints.

Longer term, many in the datacenter industry are investing in additional generation and transmission projects to enhance capacity and reliability. The report also touches on nuclear power, saying such assets are becoming "increasingly popular among the investor class" as bit barn operators look to secure long-term power security

Investors also expect sustainability concerns around the energy and water usage of bit barns to grow, with 70 percent of survey respondents indicating that they expect to see greater scrutiny by regulators in the near future. In response, operators need to consider investing in more eco-friendly technologies and transparent reporting mechanisms.

Despite the looming energy crisis the industry appears to be in danger of causing, the report concludes that the outlook for investors and dealmakers in 2024 is "overwhelmingly positive," driven by robust demand from AI, cloud services, and data generation.

DLA Piper Partner Anthony Day said that datacenters are "key to the AI revolution and the wider global economy," but that significant investment will be required to satisfy increasing demands for processing power, along with a clear framework to encourage coordination between policymakers, investors, and power providers.

 "It should be possible to fulfill industry needs and realize AI's potential. However, the need for sufficient and reliable power supplies to be in place must be a global priority," he stated. ®