The Race for AI Data Centers Sparks Shortages

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The insatiable demand for artificial intelligence is fueling a frenzied global race to build new data centers, which is straining supplies of critical components, real estate, and power required for these vast facilities, according to data center executives.

Lead times for custom cooling systems, essential for keeping the servers from overheating, have skyrocketed to five times their normal duration. Delivery schedules for backup generators, crucial for maintaining uninterrupted operations, have extended from a month to up to two years.

According to Boston Consulting Group, data center electricity consumption in the US is projected to triple by 2030, largely driven by the demands of generative artificial intelligence.

This growth is exerting sudden and substantial pressure on aging energy grids, reminiscent of past surges during the development of suburbs, widespread air conditioning adoption, and post-World War II domestic manufacturing.

In regions where data centers are concentrated, utilities are rolling out plans to invest billions of dollars to upgrade infrastructure and meet the escalating demand.

Data center builders are facing immense challenges in securing affordable real estate with adequate power and data connectivity. This scarcity is prompting them to explore highly unconventional locations worldwide.

Some are building next to an active volcano in El Salvador to tap into geothermal energy, while others are constructing data centers within shipping containers in the remote regions of West Texas and Africa.

The breakneck pace of data center construction highlights the immense appetite for AI capabilities and the extraordinary lengths companies are willing to go to meet this burgeoning demand.

Hydra Host, a data-center operator, encountered difficulties in locating 15 megawatts of power necessary for its planned facility equipped with 10,000 AI chips.

Despite an extensive search across multiple cities, suitable spaces with adequate power and cooling systems have remained elusive.

"With what we're seeing, the fervor to build is probably the greatest since the first dot-com wave," Aaron Ginn, CEO of Hydra Host, told The Wall Street Journal.

The surge in demand for computational power for AI systems, particularly since late 2022, has overwhelmed existing data centers. Raul Martynek, CEO of DataBank, told The Journal. He described the situation as a "tsunami," predicting a shortage of data-center inventory as demand outpaces supply.

Data from real estate firm CBRE indicates a 26 percent growth in data-center space in the U.S. last year, with a record amount under construction. However, rising prices and negligible vacancy rates suggest that supply is failing to keep pace with demand in the sector.

The emergence of generative AI, which necessitates considerably more computing power than traditional cloud computing functions, is driving unprecedented increases in electricity demand for utilities, particularly those serving large concentrations of data centers.

According to figures from the Electric Power Research Institute, data centers currently utilize about 2.5 percent of the total energy generated in the U.S. That is expected to increase to 6 percent by 2030.

AI is unlikely to bring down the grid anytime soon, but it is forcing data center companies, the Energy Department, utilities and utility regulators to get creative when it comes to bringing online new generating sources, and transmission lines and wringing more efficiency out of the current system.

The Energy Department determined in a recent study that utilities need deploy a range of new generating technologies in the near term, including solar, wind, natural gas, and nuclear.

David Porter, vice president of electrification and sustainable energy strategy at EPRI, told Axios the biggest challenge facing utilities is building new infrastructure to meet rapidly growing energy demands.

This is partly because it can take a decade in the U.S. to approve new transmission lines, whereas data centers can be approved and built within 18 to 24 months. ?

"Those two things do not align very well," Porter said.

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