Energy for AI Boom

The valuations and aspirations of large technology companies are growing at a rapid pace. The consumption of AI data centers in the US is expected to increase from the current 4 GW to 120 GW within ten years, which corresponds to 10% of the entire power grid's capacity. This milestone will only be a stop that AI companies want to pass through at full speed. However, these dreams cannot be fueled by expectations alone. In recent days, the first pieces have fallen into place in the puzzle of where data centers worth hundreds of billions of dollars will get their energy.

On Tuesday, the US administration entered into a partnership with Westinghouse Electric to build nuclear reactors worth USD 80 billion. One nuclear power plant block currently provides approximately 1GW of power. The agreement brings a revival to the construction of nuclear power plants, as only two blocks have been built in the US in the last eight years after long delays and a staggering cost between 30 to 35 billion USD. For the project to be profitable, the price will have to be drastically reduced.

Another discussed alternative is the use of gas-fired power plants, which currently produce 44% of the country's electricity. Their construction would build on from the planned doubling of natural gas production thanks to off-shore drills planned in the Gulf of Mexico and Alaska. The cost of building a 1GW gas-fired power plant is estimated at between 2 and 2.5 billion USD, with annual operating costs of gas accounting for 100 million USD. Google has partly gone down this route, purchasing a 400 MW power plant this week to supply its data center.

The question of how to finance the construction of energy infrastructure is also reflected in foreign policy. On Wednesday Donald Trump on his trip to Asia signed a trade deal with Japan that includes investments by Japanese companies in critical energy infrastructure totaling USD 400 billion. The cooperation includes the production and installation of small modular reactors, which should be operational in the early 2030s.

Interest in the construction of new data centers and supporting infrastructure is likely to spread around the world, and Europe is not doing poorly. At the beginning of the year, Germany and the United Kingdom each had 500 data centers, similar number as China. The question for Europe is whether it can keep pace with the rest of the world in the data race, or whether it will run out of energy and pay costly price for the services of winners.