Season 6, Post 26: New governments, more data centres
The United Kingdom has a new Prime Minister, France will get one soon and there may be a different incumbent in the White House before year-end. All will have bulging inboxes and long to-do lists. Data centre policy is unlikely to be first priority. However, given the growing demand for all things AI, how quickly and where new centres get build is becoming an increasingly fraught topic.
Data centres are big business. Over 3,000 new data centres will need to be built in Europe by 2025 in order to meet current demand. That is a 2.5x increase on current levels, based on research from TeleGeography, an information provider. There will be a corresponding increase in pressure on electricity grids. Data centre energy consumption is driven by IT equipment, cooling systems and other auxiliary components such as uninterruptable power. Anecdotally, a typical ChatGPT search query requires a tenfold increase in electricity versus a Google query.
Britan’s Labour Party, now in power for the first time since 2010, has said that it intends to kick-start economic growth and grasp the potential of AI. Making it easier to build more data centres should logically be part of this strategy. However, the practice is not as simple as the theory. In the UK, much of the space where data centres might logically be built (i.e. close to where demand is) lies on protected, ‘green belt’ land. Local opposition to perceived urban sprawl has historically tended to be strong. Several cities such as Amsterdam, Dublin and Frankfurt have already imposed clear restrictions on new developments.
How to resolve the conundrum? One suggestion that we have heard is that data centres could be considered as ‘nationally significant infrastructure’, similar to airports or wind farms. This could allow for a fast-track of planning permission and subsequent development. Better education of why data centres matter – they are integral for an online world – might also help. While Sir Kier Starmer and his peers are at it, they may also want to involve grid operators in the debate too. As we have argued previously, grid infrastructure is in need of a significant overhaul and upgrade. Globally, this could cost$20tr by 2030 – not a small sum at all.
9 July 2024
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.
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Alex Gunz, Fund Manager
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