The Rise Of Data Centres – Is Demand Outpacing Supply?
Introduction
Data centres are increasingly dominating the energy conversation. The growth of investment has been rapidly accelerated by Big Tech’s ambitious push for AI development. Yet, little attention has been paid to the practicality of powering the data centres themselves. A significant amount of electricity is required for their operation – an amount that is currently unfeasible.
The AI Boom
Growing US deregulation has played a significant role in pushing for the growth of AI. Elon Musk, for example, has now developed his own AI bot ‘xAI’[1]. To train such a model would require a substantial amount of energy. Open AI have also introduced the agentic AI tool ‘Swarm’[2] – a model that requires an even greater consumption of energy. Considering that a search on ChatGPT requires three times as much energy as on Google[3], it is unsurprising that Goldman Sachs predicts that AI will be responsible for driving an 165% increase in data centre demand by 2030[4].
Global investment
Growing investment in data centres is a worldwide trend. Private equity companies have played a large part, with US private equity backed companies investing billions into data centres for ByteDance – the owner of TikTok[5]. Blackstone have also reiterated their $80 billion investment[6], illsutrating the confidence in the energy infrastructure. Such a positive outlook is echoed by Real Estate experts, who predict that the infrastructure will undergo a period of yield compression within two years[7].
However, such investment is not isolated to the US. In the UK, the Labour government signalled their unwavering support by categorising data centres as a form of Critical National Infrastructure[8]. This places them on par with water, energy and emergency services in terms of government investment and prioritisation. Rachel Reeves recently reiterated governmental support by hailing Amazon’s commitment as ‘the start of the economic revival’[9]. Amazon pledged £8 billion towards data centre construction in the UK over the next five years[10].
The issue of supply
At first glance, the rise appears to bring only positive economical growth. Yet, a looming risk is becoming increasingly evident. The risk that there will be insufficient electricity to power the data centres. Further investment into the electricity grid is needed - a factor many seem to be overlooking. Goldman Sachs forecasts that $720 billion will be need to be spent on the US electricity grid by 2030[11].
As a solution, many are turning to nuclear energy to power data centres. However, Goldman Sachs warns that the source alone would not be sufficient[12]. Another alternative is the use of dispatchable microgrids[13] - a method powered by natural gas. Essentially, data centres could cost more than initially forecasted. They will require additional investment into infrastructure to power them, on top of the construction of the centres themselves. Therefore, as competition increases, so will pressure on these systems.
The questionable environmental benefit
Data centres have largely been advertised as a cleaner form of energy. This is misleading. Although some argue that they rely on electricity instead of natural gas[14], this suggestion is becoming increasingly discredited. The proposed solutions to power data centres largely involve the use of fossil fuels, which is certainly contradictory to the supposed benefit. While data centres can use low-emissions sources, companies are unlikely to do so where it is cheaper and quicker to use fossil fuels.
The current state of regulation
These environmental concerns are solely turning into regulation. Yet, so far there are only reporting obligations in place – a very soft form of regulation. For instance, the Energy Efficiency Act requires waste heat from data centres to be reported[15]. There are also growing calls for legal requirements on energy and water consumption, as it is predicted that AI demand could cause data centres to consume over 1 trillion gallons of fresh water by 2027[16]. This poses significant harm to the environment. However, any restrictive regulation has yet to come into force.
Conclusion
There are undeniable economic benefits to the rise of data centres. However, the ambition of Big Tech risks hampering AI growth, by ignoring the supply challenges that will inevitably catch up to them. If the challenge is not addressed soon, demand will outpace supply.
[1] ‘Elon Musk’s startup rolls out new Grok-3 chatbot as AI competition intensifies’ The Guardian (18 February 2025).
[2] L Eliot, ‘OpenAI Newly Released AI Product ‘Swarm’ Swiftly Brings Agentic AI Into The Real World’ Forbes (15 October 2024).
[3] A Chow, ‘How AI Is Fueling a Boom in Data Centers and Energy Demand’ Times Magazine (12 June 2024).
[4] ‘AI to drive 165% increase in data center power demand by 2030’ Goldman Sachs (4 February 2025).
[5] K Wiggins et al, ‘US private equity-backed data centres fuel growth of TikTok’s Chinese owner’ Financial Times (13 February 2025).
[6] A Gara, ‘Blackstone defends $80bn data centre investment as DeepSeek shakes market’ Financial Times (30 January 2025).
[7] L Brissy and S Newcombe, ‘Pipeline of data centres needs to more than double by 2025 to meet demand for storage in Europe’ Savills (2025).
[8] ‘UK datacentres to be designated critical infrastructure’ The Guardian (12 September 2024).
[9] ‘AWS plans to invest £8 billion in the UK, supporting 14,000 jobs annually in local businesses’ Amazon (10 September 2024).
[10] ibid.
[11] ‘AI to drive 165% increase in data center power demand by 2030’ Goldman Sachs (4 February 2025).
[12] ‘Is nuclear energy the answer to AI data centers’ power consumption?’ Goldman Sachs (23 January 2025).
[13] A Schurr, ‘Rethinking Our Approach To The Data Center Power-Supply Challenge’ Forbes (19 February 2025).
[14] C Crownhart, ‘What’s driving electricity demand? It isn’t just AI and data centres.’ MIT Technology Review (20 February 2025).
[15] S Kaben et al, ‘Waste heat from data centres – new reporting obligations under the EnEfG’ Taylor Wessing (6 February 2025).
[16] A Chow, ‘How AI Is Fueling a Boom in Data Centers and Energy Demand’ Times Magazine (12 June 2024).
