Data centres are the heart of the digital economy and the demand for them is expected to rise substantially, positioning them as a primary focus for growth and investment. But the cost of operating data centres is also rising substantially due to rising electricity prices and increased data centre consumption.
A new International Data Corporation (IDC) report looks at data centre electricity spending and the implications for technology providers and data centre operators.
Electricity is by far the largest ongoing expense for data centre operators, accounting for 46% of total spending for enterprise data centres and 60% for service provider data centres. And electricity consumption is growing rapidly as data centres take on more workloads and more energy-intensive workloads such as artificial intelligence (AI).
IDC expects the surging demand for AI workloads will lead to a significant increase in data centre capacity, energy consumption, and carbon emissions – with AI data centre capacity projected to have a compound annual growth rate (CAGR) of 40,5% through 2027. Accordingly, AI data centre energy consumption is forecast to grow at a CAGR of 44,7%, reaching 146.2 Terawatt hours (TWh) by 2027 with AI workloads consuming a growing portion of total data centre electricity use.
Overall, IDC expects global data centre electricity consumption to more than double between 2023 and 2028 with a five-year CAGR of 19,5% and reaching 857 Terawatt hours (TWh) in 2028.
At the same time, electricity prices are rising due to supply and demand dynamics, environmental regulations, geopolitical events, and sensitivity to extreme weather events fueled in part by climate change. IDC believes the trends that have caused electricity prices to increase over the last five years are likely to continue. Rising consumption and increased energy costs will make data centres considerably more expensive to operate, but how much is uncertain.
To better understand the impact of rising electricity costs on data centre operations, IDC conducted scenario planning for a data centre with 1 MW of IT load in 2023, running at 50% capacity and power usage effectiveness (PUE) of 1.5. The study looked at three energy price growth scenarios using energy pricing and growth rates for the US, Germany, and Japan.
In all three scenarios, the percentage growth in electricity spend exceeds a CAGR of 15% in all cases – with most scenarios showing growth of over 20%. The study also shows that an additional 10% in energy efficiency can offer considerable savings to data centre operators.
“There are any number of options to increase data centre efficiency – ranging from technological solutions like improved chip efficiency and liquid cooling, to rethinking data centre design and power distribution methods,” says Sean Graham, research director, Cloud to Edge Datacenter Trends at IDC. “But providing energy-efficient solutions is only part of the equation for meeting customer needs. Data centre providers including cloud and co-location services, should continue to prioritise investment in renewable energy sources. By investing in renewables, they are helping to increase overall supply while helping their customers meet their sustainability goals.”
Solar and wind power, in particular, offer significant environmental advantages while also providing the lowest levelised cost of electricity (LCOE), which reflects the average net present cost of electricity generation over a generator’s lifetime. And by co-locating facilities at or near the source of renewable energy generation, providers can reduce both construction costs and energy losses associated with distribution – enhancing overall efficiency and sustainability while also improving resiliency by removing grid reliability issues.