Data centers now attract more investment than finding new oil supplies

A recent report from the International Energy Agency (IEA) highlights a significant shift in global economic priorities: this year, investments in data centers are projected to reach an astounding $580 billion, surpassing the $540 billion allocated for new oil supply ventures. This shift underscores the evolving landscape of modern economies that are increasingly reliant on digital infrastructure. The IEA anticipates that electricity usage from AI-focused data centers will surge fivefold by the end of the decade, effectively doubling the current energy consumption of all data centers combined. While traditional data centers will also see increased energy demands, the growth rate will not be as drastic. A notable 50% of this demand expansion is expected to occur in the United States, with significant growth also anticipated in Europe and China. Most of the new data centers are being constructed in large urban areas with populations exceeding one million. The report indicates that half of these upcoming facilities will have capacities of at least 200 megawatts, and many are strategically located near existing data centers. However, this rapid expansion is not without its challenges. The IEA points out that grid congestion and lengthy connection queues are becoming more common, with some areas like northern Virginia experiencing waits of up to a decade for grid connections. In Europe, the city of Dublin has frozen new interconnection requests until 2028 due to similar issues. The supply chain supporting grid infrastructure is also under pressure, with delays in upgrading cables, critical minerals, gas turbines, and transformers. Companies such as Amperesand and Heron Power are exploring innovative solutions like solid-state transformers, which promise to enhance grid reliability and efficiency. However, these advancements are still a few years from deployment and will require time to scale production. Looking ahead, the IEA projects that renewable energy sources will dominate the power supply for new data centers by 2035, regardless of the current energy policies in place. Solar energy, in particular, has become increasingly attractive for developers due to its declining costs. Over the next decade, it is expected that renewable sources will provide approximately 400 terawatt-hours of electricity for data centers, compared to 220 terawatt-hours from natural gas. If small modular nuclear power plants meet their potential, they could add another 190 terawatt-hours to the mix, further diversifying the energy supply for these critical infrastructures.