Data Centers’ Balance of Power Is at the Tipping Point. How Will Developers Respond?

Due to the rapidly increasing demand for power, “data center power consumption is projected to increase from 4.4% of the nation’s power in 2023 to 12% by 2028,” says Loni McCarron, senior manager of business development for Gray in Fullerton, California. “As a result, utilities are unable to keep pace with the demand.”

The top concern in new data center (DC) design is power—how much power is required, how power is generated, power usage efficiency, power costs, and “who gets it when,” says McCarron. “In fact, power availability is a real estate driver. Whoever can get it the fastest is most likely to secure the first customer.”

Fortunately, developers and their design and construction partners are exploring a wide range of solutions.

“Increasingly, we’re seeing companies move outside of the core markets to cornfields that are 50, 60, or 70 miles away,” adds Andy Cvengros, managing director for U.S. data center markets at JLL. “The power infrastructure in many traditional data center markets isn’t able to meet their power needs, so they’re forced to chase power capacity in more undeveloped areas.”

Chips also impact data center performance. As chips become denser, they also become more powerful. “What was once done with 10 servers can now be accomplished with a single server. Doing more with less tends to make older designs obsolete,” says Ben Burgett, vice president of data centers for Gray in Dallas. “In a parallel world with a less explosive market, you might see fewer servers on the floor giving out the same output as in the past, but since the market is experiencing such a race for resources and dominance, floor space is staying filled with more powerful servers, which multiplies what DC operations can get per square foot of facility.”

Regarding data center management, storage and processing loads have significantly increased. Due to AI and other high processing computing requirements, “server densities are evolving from an average of 5–10 kW to 50+ kW,” says McCarron. “This requires more creative cooling techniques that can handle the extreme heat generated in high-performance-computing environments, such as direct-to-chip liquid cooling.” An alternative to air cooling, this technique consists of cold plates that sit on top of the heat-generating equipment and draw about 75% of the heat away from the stack.

Market Growth Spurs Change in Power Strategies

Some companies still utilize edge computing in their DC operations, where smaller DCs are set up in locations closer to their end users. Service providers with multiple data centers in one region can ping these centers more quickly, reducing latency and delivering a faster response to the end user. However, new construction of edge computing facilities is becoming less common as hyperscale facilities developed near urban cores provide customers with a similar experience. “As overall Internet infrastructure and network performance improves, latency decreases and the justification for edge computing is weakened,” says Mark Schultz, business unit leader for data centers for Gray in Dallas.

Data center companies seek locations that can properly support their current and future power density and cooling requirements. “Some companies are putting DCs in locations they never would have considered before, simply based on access to power and transmission lines,” says Burgett. Projects currently under construction include Meta’s data center campus outside Kuna, ID, and a large Amazon campus in Canton, MS—each located in a small market.

As generation and transmission capacity become increasingly important factors in DC viability, owners and operators are seeking viable supplemental energy sources for current and future needs to bridge expected power shortages. “Bridge” power solutions include natural gas, battery storage, fuel cells, sustainable energy, and potentially even small modular nuclear reactors (SMRs). Though promising as a future power source, “SMRs are not entirely competitive for bridge power today because of their long development and government approval timelines, not to mention their high price tag,” reports JLL. Even so, “many industry experts expect SMRs to reach commercial viability in 5–10 years, making them potential candidates for bridge and grid power over the long term.”

“Although SMRs have yet to be constructed on a DC campus, many are in various stages of feasibility studies and evaluations,” says Schultz. “Onsite gas generation or fuel cell use is currently considered a more relevant option.”

To reduce energy consumption, DCs continue to look for new energy-efficient server technologies and building designs. Due to space constraints, more DC owners are building two- and three-story hyperscale facilities that reduce construction costs and improve power efficiencies. In fact, QTS’s standard DC design is a two-story building. “If SMRs and other on-site power generation become more prevalent, overall large campus sizes—10–20 buildings per campus with 1–2 GW of critical power—will become more common,” says Schultz.

It’s Not the Engine: It’s the Transmission

According to JLL, “data center energy demand in the U.S. is projected to reach 62 GW by 2028, a staggering increase from roughly 31 GW in 2023.” The U.S. power grid is already operating near full capacity. Over the next decade, power demand will approach the maximum permitted outputs. Currently, however, the problem may stem more from an inability to reliably transmit power rather than generate it.

Although there is abundant capital and real estate, the DC market is currently limited by power availability, held back by aging grids that are too old to keep up with demands.

“Getting access to the power through transmission is an overlooked crisis,” says McCarron. “Independent estimates indicate transmission systems will need to increase by 60% by 2030 to keep up with projected energy demands. To compound the problem, the transformer supply chain is still slow after the pandemic, sometimes taking years to get product.”

Proposed transmission solutions include new high-capacity transmission lines, microgrids for on-site generation, and using AI to find innovative transmission solutions.

Other limitations to DC growth include construction labor, (largely mechanical, electrical, and plumbing trades), and “owner furnished/contractor installed” supply chains. “However,” says Schultz, “most developers have simply placed equipment orders earlier in the typical development cycle, to get their place in line. Some developers have gone as far as using warehouses to temporarily store equipment that was intentionally ordered early to ensure its availability when needed on site.”

“Without a significant increase in the power supply, demand will surpass permitted peak power output in the early 2030s,” cautions Andrew Batson, head of data center research for JLL. “For anyone owning or operating a data center, this is something that needs to be planned for today.”

Burgett agrees.

“The overall value of data center market grows exponentially year over year,” says Burgett. “Scale is exploding due to chip technology, causing huge strains on the grid. Where there is power, there will be a data center—and I don’t see this slowing down any time soon.”