AI drives data center, energy race by Microsoft, others
Microsoft's latest moves to secure electricity and more data centers tackle two problems faced by major cloud providers: insufficient power and space to meet AI demands.
Microsoft's recent initiatives to address growing power and data center needs highlight cloud providers' race to lock in resources critical to their AI ambitions.
Last week, Microsoft reported a 20-year agreement to buy electricity from Constellation Energy's Three Mile Island (TMI) nuclear plant. Three days earlier, Microsoft joined three investment firms in launching a fund to spend up to $100 billion in power infrastructure as well as new and expanded data centers.
The pacts cover two challenges faced by leading cloud providers AWS, Microsoft Azure and Google Cloud: insufficient power and data center space to run AI models and applications through the end of the decade, experts said. Immediate remedies include locking in carbon-free nuclear power and partnering with investment firms eager to cash in on rising data center demand.
"Mobilizing private capital to build AI infrastructure like data centers and power will unlock a multi-trillion-dollar long-term investment opportunity," said Larry Fink, chairman and CEO of Microsoft partner BlackRock, in a statement.
BlackRock, Global Infrastructure Partners (GIP) and Abu Dhabi-based investment fund MGX will work with Microsoft on raising an initial $30 billion for their Global AI Infrastructure Investment Partnership. The group, which includes AI chipmaker Nvidia as an adviser, plans to grow the fund to $100 billion eventually.
BlackRock, which plans to acquire GIP for $12.5 billion on Oct. 1, is an asset management firm with a private equity investment arm. GIP specializes in infrastructure investments, and MGX focuses on raising private capital for AI and other advanced technologies.
'A huge opportunity'
Under Microsoft's Constellation deal, the energy company will sell power generated from TMI's Unit 1 reactor to the cloud provider. Constellation shut down the unit five years ago because of the high cost of generating electricity from the plant.
The Microsoft deal intends to make it possible for Constellation to reactivate the 837-megawatt unit in 2028 following federal approval as well as obtaining state and local permits. A reactor the size of Unit 1 can power 800,000 homes.
Nuclear is a huge opportunity for carbon-free energy.
Andrew BatsonSenior director of data center research and strategy, Jones Lang LaSalle
Three Mile Island is the site of the worst nuclear accident in U.S. history. In 1979, mechanical failures and human errors led to a partial meltdown of the Unit 2 reactor and the release of small amounts of radioactive gases. Unit 2 owner EnergySolutions is decommissioning the reactor, which is in a facility independent of Unit 1, Constellation said.
Cloud providers recognize that finding new power sources is critical, experts said. Today's U.S. power grid will reach capacity by the end of the decade if there are no new sources of energy.
"Nuclear is a huge opportunity for carbon-free energy," said Andrew Batson, senior director of data center research and strategy at Jones Lang LaSalle. JLL is a global real estate services and investment management company.
In March, Talen Energy reported selling to AWS a Pennsylvania data center powered by Talen's nearby 2.5-gigawatt Susquehanna Steam Electric Station nuclear plant. AWS paid $650 million for the facility, according to Talen.
Nuclear power is just one of several energy options chased by cloud providers and other hyperscale data center operators. For example, fuel cells have attracted the attention of Microsoft and data center leaser Equinix as a clean energy option for data centers. Fuel cells create electricity through the electrochemical reaction of mixing hydrogen and oxygen.
Other energy options
Some companies are also considering gas turbines as a stopgap measure for the next few years until more clean energy, like wind and solar, makes its way to the electrical grid.
"A very fair portion of our clients are considering fuel cells or natural gas turbines," Batson said. "Granted, there are carbon emissions. But if you're not going to have a power grid connection for five years, there are bridge energy solutions you can connect to as soon as the construction itself is completed."
Funds like the one formed by Microsoft and its partners have become a typical mechanism for financing not only new data centers but also the substations and transmission lines needed to carry power from nuclear plants and other sources, said Jacob Albers, head of alternative insights at Cushman and Wakefield, a real estate services firm that operates in 60 countries.
The funds also finance microgrids, a self-sufficient energy system for delivering power from various distributed energy sources, such as solar panels, wind turbines and batteries.
"Funds have been really active over the last two years," Albers said.
Antone Gonsalves is an editor at large for TechTarget Editorial, reporting on industry trends critical to enterprise tech buyers. He has worked in tech journalism for 25 years and is based in San Francisco. Have a news tip? Please drop him an email.
