Tech giants eye power grab to feed their AI

Microsoft, Amazon and the Google owner Alphabet have big-enough cash piles to buy some of America’s biggest publicly traded utility companies and still have leftover change.
Such deals would be unlikely to get off the ground without regulatory intervention. However, the possibility has been privately discussed by analysts and energy executives as they speculate on the next moves from technology companies desperate to get their hands on more electricity for data centres that power artificial intelligence applications. The other issue is what this means for the price and availability of power for other customers.
On Wednesday, Amazon said it would finance the construction of small nuclear reactors in Washington State and invest in X-energy, a nuclear start-up.
Days earlier, Google announced a deal with Kairos Power, a privately held nuclear power start-up, to support the construction of multiple small modular reactors.
That follows Microsoft’s recent agreement with Constellation Energy to buy nuclear power from a plant at Three Mile Island in Pennsylvania.
“There’s a new person with a seat at the table, and that’s going to change how power is scheduled, built, designed, and the economics around it as well,” said Asher Genoot, chief executive of Hut 8 Corp, a Nasdaq-listed energy infrastructure operator.
“Data centre [operators] are now directly talking to generation companies on, ‘how do I work with you and get interconnected to your generation facility, or interconnected to the utility?’” he told an audience of investors and students at the energy business summit hosted by the University of Southern California in Los Angeles this week.
Technology companies are in a race to get their hands on as much electricity as they can to power their huge bets on the transformative power of generative AI. A ChatGPT query needs nearly ten times as much electricity to process on average as a Google search.
Goldman Sachs estimates that the AI revolution will drive 160 per cent growth in data centre power demand by 2030. Data centres worldwide presently consume between 1 per cent and 2 per cent of power, but that percentage will probably rise to between 3 per cent and 4 per cent by the end of the decade, according to the bank’s forecast.
Growth in demand for US energy power has been flat over the past decade thanks to efficiencies such as LED lights. Goldman estimates that between 2022 and 2030, the demand for power in the US will rise roughly 2.4 per cent and around 0.9 percentage points of that figure will be linked to data centres. Other demand is coming from the drive in some states for more electric vehicles and manufacturing plants launched with the assistance of tax policies under the Inflation Reduction Act.
That kind of spike in demand hasn’t been seen since the early years of the century. If the predictions are correct, it could have significant implications for the availability and price of energy for consumers and businesses.
Mark Nelson, managing director of the Chicago-based Radiant Energy Group, said the increased energy demand from data centre owners would “without a doubt” have an impact on energy prices.
“The data centres are willing to buy long-term contracts at extremely high prices from nuclear plants that were undervalued and underappreciated on the grid,” he said. “That means that that power is going to go to data centres instead of the cities.”
He believes that the higher prices for nuclear will mean that some states who plan to phase out coal and gas will have to row back on their ambitions.
Nelson added: “We specifically made a system where regulators couldn’t force a power plant to be built. They could force a power plant not to turn off because they think it might crash the grid. But in a lot of the country, power plants have to take [the] risk that they get built and we don’t need the power. The flip side is, if nobody builds the power plant but there’s more demand, then power prices should surge.”
Anand Mohanrangan, a partner at McKinsey & Co in its west coast office, said he did not believe regulators would approve deals that would cause consumers’ energy bills to go up in the short term. However, he said price increases in the medium term could be “inevitable” because of the impact of the need to increase capacity on the supply chain, citing a shortage of electricians and engineers.
“Even if the hyperscalers invest the money for their own things, it is driving a cost for everybody, because the third order effect is supply chain,” he said. “Equipment is not there, talent is not there.”
Joseph A Householder, a board member at Advanced Micro Devices, the chipmaker, said there will be “indirect effects” on energy supply from the increase in demand. “If some of these data centres are starting to use natural gas plants that are not fully utilised today, that’s a great benefit for the natural gas plant owners right now, because during the day, they might not be running at all because of solar, but they could be running more efficiently. That’s good.”
He added: “On the gas side, it could have an impact on gas demand and drive gas prices, which will impact consumers if they’re using gas in their homes. So there will be some indirect effects, because this is a significant increase in the demand for energy.”
Nuclear energy has become a favourite resource for technology companies because it is carbon-free and, unlike solar and wind, can reliably provide energy around the clock. The new demand has helped push up the share price of Constellation Energy, which operates the largest fleet of nuclear plants in the US, by 132 per cent this year.
However, some of the nuclear investments will take years to come online and when they do, the success of the technology is uncertain. Kairos, a start-up founded in 2016, expects to get the first reactor up and running for Google by 2030. Some energy experts are sceptical that it will be ready before 2035.
Nuclear energy investments by technology giants could be used to offset their use of fossil fuels, as the rise in electricity use puts their net zero pledges at risk. Hut 8 Corp’s Genoot said: “I think long-term, the ESG [environmental, social and governance] narrative will come back in, once power is available. But today, people are prioritising the ability to get power at scale above all else, and they’ll figure out ways to offset whatever else that we do.”
US regulators are reviewing a deal agreed earlier this year by Amazon Web Services to buy electricity and a data centre campus from Talen Energy. The deal would supply Amazon’s data centres with an electric capacity of up to 960 megawatts, or enough to power about a million homes.
It is being opposed by a group of electric utilities, including American Electric Power and Exelon, who say the agreement could raise power bills for the public. Talen disputes that the agreement for the Amazon data centre site would cause a spike in utility prices or affect the reliability of the grid.
Referring to the opposition to the deal, Talen told the Federal Energy Regulatory Commission: “It is an unlawful attempt to hijack this limited interconnection service agreement amendment proceeding that they have no stake in and turn it into an ad hoc national referendum on the future of data centre load.”
Michelle Solomon, senior policy analyst at Energy Innovation, a non-partisan energy and climate policy firm, said one of the biggest risks to consumers and businesses is if a data centre is built and significant investment is made to invest in transmission, but then the data centre decides to go elsewhere after the investment has been made. In that circumstance, other customers could be asked to cover the costs.
“If the data centre stops running, or something like that, and all this investment has been made for the data centre specifically, that’s a really big risk,” she said.
Utility companies are grappling with the problem. Xcel Energy has said it is considering options such as “take-or-pay” contracts that would require data centres to pay for a minimum amount of energy no matter how much is used.
Arizona Public Service, the largest electric utility in the state, has introduced minimum thresholds on bills to cover the cost of any necessary investments.
Could anything stop the tidal wave of demand for energy from data centres? Mohanrangan says the jury is still out on the power of Gen AI.
He said: “If these use cases turn out to not be as meaningful, not because they can’t do 80 per cent of the job, but they can’t get the last 20 per cent, the last mile, they won’t get adopted at the scale, or they may not get adopted with the speed that we expect, right? And if that were to happen, the story is going to look quite a bit different, at least on the enterprise side.”
Householder said the AI technology itself could find ways to make its use less energy-intensive. He said: “I think if we find different ways to do this more efficiently, that might really reduce the energy demand.” However, he added: “ I don’t think this is going to stop for a number of years.”