Artificial intelligence could require more electricity from data centers than cities.

• Data center campuses power artificial intelligence and cloud computing
• As the campuses expand, it becomes increasingly challenging to secure enough power and suitable land to accommodate them.
• Anytime soon, meeting power needs won't be possible solely with renewable energy.
• To meet carbon dioxide emissions targets, natural gas must be utilized, but this will hinder progress.

Companies developing artificial intelligence and cloud computing facilities predict that individual data center campuses may soon consume more electricity than some cities and entire U.S. states.

In the past decade, the demand for data centers has grown exponentially, as they have become essential for running the applications that businesses and individuals use daily.

As artificial intelligence technology advances, the size of data centers is increasing, making it harder to find enough power and suitable land to accommodate them. These facilities may require a gigawatt or more of power, which is equivalent to about twice the residential electricity consumption of the Pittsburgh area last year.

Ali Fenn, president of Lancium, stated that technology companies are in a race to global dominance in artificial intelligence. She emphasized that this is about national and economic security, and companies will continue to invest because there is no more profitable place to deploy capital.

Developers claim that natural gas will have to be utilized in order to meet power demands, despite the availability of renewable energy, which will hinder the achievement of carbon dioxide emissions targets.

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Tract's chief energy officer, Nat Sahlstrom, stated that data centers, regardless of their power source, have reached a scale where they are "tapping out against the existing utility infrastructure."

Sahlstrom, who previously led Amazon's energy, water and sustainability teams, stated that the funnel of available land in this country that's industrial zone land that can fit the data center use case is becoming increasingly constrained.

Beyond Virginia

Due to the limited availability of land and power, data centers are expanding into new markets beyond the established global hub in northern Virginia, according to Sahlstrom. The electric grid in Virginia is facing impending reliability issues as power demand is predicted to increase while supply is decreasing due to the retirement of coal- and natural gas-powered plants.

Over 23,000 acres of land have been gathered by Tract for data center development across the U.S., with significant holdings in Maricopa County, Arizona, and Storey County, Nevada.

Recently, Tract purchased nearly 2,100 acres in Buckeye, Arizona with the intention of constructing one of the largest data center campuses in the country. The privately-owned company is collaborating with utilities to obtain up to 1.8 gigawatts of power for the site to accommodate as many as 40 individual data centers.

A data center campus with a peak demand of one gigawatt is equivalent to the average annual consumption of approximately 700,000 homes or a city of about 1.8 million people, according to a CNBC analysis utilizing data from the Department of Energy and Census Bureau.

According to Department of Energy data, a data center campus of that size would consume more electricity in one year than the total retail electric sales in Alaska, Rhode Island, or Vermont combined.

A gigawatt-size data center campus running at peak demand is roughly comparable to about 660,000 households, or a city of more than 1.6 million people — about the population of San Francisco.

According to data from the Boston Consulting Group, the average size of individual data centers operated by major tech companies is currently around 40 megawatts. However, a growing pipeline of campuses with sizes of 250 megawatts or more is expected in the future.

According to BCG data, the U.S. is predicted to have a growing number of data center campuses of 500 megawatts or more, equivalent to half a gigawatt, in the 2030s through mid-2040s. These facilities are equivalent to about 350,000 homes, as analyzed by CNBC.

Vivian Lee, managing director and partner at BCG, stated that the average size of data centers is rapidly increasing from now until 2030.

Community impact

Texas is a highly appealing market due to its less restrictive regulatory climate and abundant energy resources that can be customized to specific locations, according to Sahlstrom. "Texas is likely the world's ideal testing ground for implementing your own energy solution," the energy officer stated.

Lancium, a Houston-based company founded in 2017, aimed to bring large electric loads near abundant renewable energy resources in west and central Texas. Initially focused on cryptocurrency mining, the company later shifted its focus to providing power for artificial intelligence with the advent of ChatGPT in late 2022.

Lancium currently has five data center campuses in development, with a 1,000-acre campus in Abilene set to open in the first quarter of 2025, boasting 250 megawatts of power that will increase to 1.2 gigawatts by 2026.

Lancium's data center customers now require a minimum power of one gigawatt, with plans to scale up to between three and five gigawatts in the future, according to Fenn.

To maintain grid reliability and prevent rising electricity costs in neighboring communities, developers must ensure that new data centers are paired with new power generation facilities, according to Fenn.

Fenn stated that data centers must collaborate with utilities, system operators, and communities to demonstrate that they are valuable to the grid rather than detrimental. Otherwise, such developments will not be approved, as they may increase residential and commercial electric rates.

Renewables not enough

Equinix, one of the largest data center operators globally, has data center campuses that run by publicly-traded companies growing from 100-200 megawatts to several hundred megawatts, according to Jon Lin, general manager for data center services at the company.

While developers prioritize carbon-free renewable energy, they recognize that solar and wind power are insufficient to meet current demand because of their dependence on fluctuating weather conditions.

Equinix's data centers are responsible for some of the most critical workloads for the world's economy, including financial exchanges, and they have an uptime rate of over 99%, with no outages possible, according to Lin.

Lin stated that the firmness of power is still crucial for data centers, and relying solely on local renewables is not a viable option.

In the U.S., major technology companies are major purchasers of renewable power, but they are increasingly turning to nuclear power for more reliable sources of electricity. Amazon and Alphabet's Google are investing in small nuclear reactors.

The construction of new nuclear reactors is costly and often faces setbacks. In Georgia, two recently operational reactors were completed years later and at a significant expense over the initial budget.

In the near future, natural gas will be the primary source of power for data centers, according to Lancium's Fenn. Gas is the most reliable power source for these facilities, as Boston Consulting Group's Lee explained.

Lee suggested that investments could be made in new gas generation technology that incorporates carbon capture and battery storage over time to reduce the environmental impact.

In the near term, data center expansion is disrupting technology companies' emissions targets, despite the industry's hope that gas demand will taper off as renewables expand, battery storage costs come down, and AI helps data centers operate more efficiently, Fenn said.

"Fenn stated that the increased use of natural gas is a short-term solution, but it cannot negatively impact the environmental goals."

The CNBC analysis estimates that a data center campus consumes 7.4 billion kilowatt-hours annually, assuming it operates at 85% of its peak demand of a gigawatt, utilizing national averages for household electricity consumption from the EIA and household size from the Census Bureau.