Exploring the Energy Impact of ERP and AI in the Cloud

Exploring the Energy Impact of ERP and AI in the Cloud

Cloud computing has revolutionised the way we think about IT. AI is actively changing the future of work. That is great but the rise in cloud usage and now increasing energy hungry GPU’s for AI raises the pertinent question on how green the future of cloud actually is.

Cloud computing contributes to carbon consumption in several ways. Cloud computing relies on data centres which require a significant amount of electricity to run, and much of this electricity is still generated from fossil fuels. The carbon footprint of cloud computing is not negligible. For instance, storing 100 gigabytes of data in the cloud per year would result in a carbon footprint of about 0.2 tons of CO2. Global emissions from cloud computing range from 2.5% to 3.7% of all global greenhouse gas emissions.

What does AI mean for energy consumption

The energy demand for cloud computing is increasing rapidly, and the use of artificial intelligence (AI) is contributing to this trend. According to the International Energy Agency (IEA), the energy consumption of data centres worldwide is expected to increase by more than 50% by 2030. The IEA also reports that AI already serves more than 50 different uses in the energy system, and that the market for the technology in the sector could be worth up to USD 13 billion.

AI models require significant computational power, and this has led to concerns about their energy consumption. A recent estimate suggests that AI already accounts for about 15% of Google’s total energy use over the prior three years. However, data is not systematically collected on AI’s energy use and wider environmental impacts, and there is a need for greater transparency and tracking – especially as models grow.

Hugging Face, an AI company in the US, has said its multilingual text-generation AI used around 433 megawatt-hours (MWh) during its training, which is enough to power 40 average homes in the US for a year.

Why does this matter

Companies should care about the carbon consumption of their IT applications for several reasons:

• Regulatory Compliance: As awareness of climate change grows, so does the likelihood of regulations requiring companies to reduce their carbon emissions. Managing the carbon consumption of IT applications can help companies stay ahead of these regulations.
• Cost Savings: Energy-efficient IT applications can lead to significant cost savings over time. This is because energy costs are a significant part of the total cost of ownership for IT applications.
• Reputation and Brand Image: Companies that demonstrate a commitment to reducing their carbon footprint can enhance their reputation and brand image. This can lead to increased customer loyalty and potentially attract new customers.
• Innovation and Competitive Advantage: Focusing on reducing the carbon consumption of IT applications can drive innovation and provide a competitive advantage. For example, it can lead to the development of new, more efficient technologies.
• Sustainability Goals: Many companies have set sustainability goals as part of their corporate social responsibility initiatives. Managing the carbon consumption of IT applications can be a key part of achieving these goals.

What are the hyperscalers doing?

Efforts by hyper scalers have pushed for carbon neutral energy. I remember being in California in Google's cloud space and seeing examples of the never ending wires and racks that make up a data centre and I thought then about the energy usage, the cooling needs and increasing demand.

Google Cloud has been working to reduce the environmental impact of cloud computing through innovative renewable energy purchasing and commitment . According to a report by Google, the company’s data centres around the world use about twice as much electricity as the city of San Francisco. In 2020, Google used 15.5 terawatt hours of electricity, and the majority of that goes to its data centres.

While using cloud-based services results in some additional energy consumption from the use of Google servers and an increase in traffic on the Internet, Google has committed to using 100% renewable energy for its data centres by 2030. In fact, Google Cloud has already saved 750 GWh of electricity, which is equivalent to half the annual consumption of an average-sized steel mill.

It is also positive to note that the energy consumption of data centres has been growing, but not as fast as the increase in computing output. Between 2010 and 2018, the computing output of data centres increased by 550%, but their energy consumption grew by just 6%. This is due to significant energy efficiency improvements in the tech industry.

So what does this mean for S/4HANA?

The energy consumption of running SAP S/4HANA in the cloud versus on-premise in your own data centre can vary based on several factors. Here are some key points to consider:

• Efficiency: Cloud computing is generally more energy-efficient than on-premise server rooms. This is because cloud providers like Amazon Web Services, Google Cloud, and Microsoft Azure have access to resources and expertise to optimise their data centres for energy efficiency in a way that most individual organisations cannot.
• Scale: Cloud providers can achieve economies of scale that can lead to more efficient use of energy. They can dynamically allocate resources based on demand, which can reduce energy waste.
• Green Energy: Some cloud providers are making significant investments in renewable energy sources. If your cloud provider uses green energy, this could reduce the carbon footprint of your SAP S/4HANA cloud deployment.
• Customisation: On-premise solutions offer more control and flexibility, allowing for high compliance with individual business requirements. However, this can lead to higher energy consumption if not managed efficiently.
• Maintenance: On-premise infrastructure and maintenance are implemented and managed by the customer’s IT staff, whereas system infrastructure and maintenance for cloud solutions are under the control of SAP.

What can you do - tools to manage your energy consumption

S/4HANA in the cloud is designed with sustainability in mind, and it has several features that help manage and reduce carbon footprint:

• SAP Product Footprint Management: This feature enables you to calculate product footprints periodically and at scale along the entire product lifecycle. You can extract business data (such as master data and material movements information) from your SAP S/4HANA systems and associate these to your emission factors. Then, you can run a mass calculation to generate footprints for your products.
• Integration of Footprints into Stock: SAP S/4HANA Cloud allows the integration of footprints into stock. This means you can track the carbon footprint of materials in your inventory.
• Sustainability Reporting: SAP S/4HANA Cloud provides insights by combining financial, logistic, and environmental data in analytics. This allows you to evaluate and derive footprints at scale.
• Green Ledger: You can deploy your own green ledger using SAP S/4HANA Cloud with SAP Sustainability Footprint Management to account for the carbon emissions of every business transaction.
• Sustainable Purchase Decisions: In SAP S/4HANA Sourcing and Procurement, customers can make sustainable purchase decisions based on a material’s carbon footprint displayed in purchase requisition.

However, the exact carbon footprint of using SAP S/4HANA in the cloud can vary depending on several factors, including the scale of usage, the efficiency of the data centres used, and the energy mix of the electricity used to power those data centres.?

The hyperscalers are also acting on this. For example, here are some of the tool AWS offers to monitor energy consumption:

• Carbon Footprint Tool: AWS offers a Customer Carbon Footprint Tool to track, measure, review, and forecast carbon emissions from AWS usage.
• Power Consumption Estimation: Research has been conducted to estimate the power consumption of AWS EC2 instances, considering factors like hardware and workload types.
• Energy Efficiency: AWS infrastructure is reported to be 3.6 times more energy efficient than the median US enterprise data centres.
• Renewable Energy Goals: AWS is working towards powering operations with 100% renewable energy, aiming to reduce the carbon footprint of cloud workloads significantly.

Microsoft Azure has been carbon-neutral since 2012, and the company has set a goal to use 100% renewable energy for its data centres by 2025. Microsoft has also developed a platform called Microsoft Cloud for Sustainability, which allows organisations to combine disparate data sources into one place and help provide insights into how to improve their sustainability approaches. Microsoft measures energy and water use at its data centres to improve sustainability across the Azure Cloud. The company tracks Power Usage Effectiveness (PUE) and Water Usage Effectiveness (WUE) metrics at a global level and by operating geographies. The most recent data available is from April 2022.

In Conclusion?

In summary, the energy demand for cloud computing is increasing, and the use of AI is contributing to this trend. While AI has the potential to improve efficiency and accelerate innovation in the energy sector, it is important to monitor its energy consumption and environmental impact.?

It’s great to see this go from “it would be nice to be carbon neutral” to “we must be carbon neutral because it makes good business sense to do so”. Boards and CEOs are finally listening. Proactive monitoring, energy-conscious choices and clear actions for managing sustainability are critical for all organisations. Achieving carbon neutrality won’t happen by accident.

The green ledger is a feature of SAP S/4HANA that will help ESG reporting and feed into sustainable control tower monitoring and will provide transactional carbon accounting to support profitable, low-carbon business models. It can help you manage and reduce your carbon consumption in several ways:

• Transactional Carbon Accounting: The green ledger allows you to manage the carbon entering and leaving your systems and balance your “carbon books” the same way you balance your financial books. This enables combined financial and environmental decision-making at different points across the business process.
• Accurate Data: The green ledger replaces estimated or average emissions values with actual, verified data. This allows you to see holistically across the value chain to understand where emissions are occurring, set accurate net-zero targets, and identify specific areas for decarbonization impact.
• Regulatory Compliance: The green ledger helps companies meet regulatory requirements for greenhouse gas emissions accounting. This is expected to soon be a legal requirement in various jurisdictions, including the European Union.

Green ledger capabilities, by connecting your supply chain and vendors can carbon impacts of cloud be apportioned to buyers of cloud services and then further on into value chains of others who consume downstream products. By providing a more accurate and comprehensive view of your company’s carbon footprint, the green ledger can help you make more informed decisions about how to manage and reduce your carbon consumption. I would like to see this happen in the next 5-10 years.

Here at PwC we frequently work with organisations to work through these complex decisions and identify the right pathway to S/4HANA for them. We bring a robust approach, proven tools and templates and hard-earned experiences of doing this across industry sectors. To find out more, please contact me or Rohit Chandrasekhar - alternatively please visit https://www.pwc.co.uk/issues/transformation/finance.html.

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