Power Problems ahead?
Data centres are hardly new. Global installed capacity has been compounding at 10-20% per annum for twenty years plus. Traditionally driven by central processing units (CPUs), the advent of graphics processing units (GPUs), which excel at parallel processing, has been a game changer. GPUs can handle many smaller tasks simultaneously making them ideal for complex calculations involving large datasets. The drawback is that they consume three or four times the power of a CPU.
Google’s AI driven Gemini gives a handy analogy “imagine a chef (CPU) in a kitchen. The chef can handle complex recipes (complex tasks) but can only work on one dish (one task) at a time. On the other hand, a bakery (GPU) with multiple ovens can handle many simpler tasks (calculations) simultaneously, like baking cookies (smaller calculations)”.
Electricity demand in developed economies such as the United States and Europe has been more or less static for the past two decades but the arrival of EVs, heat pumps and now GPU driven data centres looks to be transforming the outlook for global electricity demand. Jefferies recently published an excellent report highlighting the likely trends. Using IEA data, Jefferies estimate that European electricity demand will climb 7% over the next two years with EVs, heat pumps and data centres accounting for half the increase in demand.
Underlying these findings are Jefferies’ expectations that European data centre capacity will compound at 10-20% over the next decade. We wonder if these forecasts are too conservative. While there remains a lot of ‘hype’ in the capital markets when it comes to AI developments, there is little doubt that AI is transformational.
With ‘net zero’ targets seemingly falling by the wayside, an unexpected boom in electricity consumption is unhelpful. To quote from a recent Bloomberg article “The world needs to be capturing about 1 gigaton of CO₂ a year by 2030 to be on track to reach net-zero emissions by 2050 and limit the global temperature rise to 1.5 degrees Celsius (2.7 degrees Fahrenheit) above mid-19th century levels, the International Energy Agency estimates. That’s 26 times what’s being removed annually now. And it’s three times what would be captured if all the projects now planned or under construction are operating by 2030”.
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