Next in Tech | Ep. 283: Sustainable Energy and Data Center Demand

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[00:00:00] Eric Hanselman: Welcome to Next in Tech, an S&P Global podcast where the world of emerging tech lives. I'm your host, Eric Hanselman, chief analyst for industry research at S&P Global. And today we're talking about sustainability around data center resources. And joining me is Tony Lenoir, who's been doing a lot of research in this area.

[00:00:20] Eric Hanselman: Tony, welcome back to the podcast.

[00:00:22] Tony Lenoir: Hi, Eric. Thanks for having me

[00:00:24] Eric Hanselman: It's great to have you back. We’ve been talking a lot about various aspects of data center capabilities, a lot of the technology, actually even in previous episodes looking at some of the insurance requirements, some of the broader financial perspectives. But I wanted to dig into some of the aspects of the sustainability concerns and areas in which you've been focused recently.

[00:00:45] Eric Hanselman: We've talked a lot about the expansive power demands, that, that are being presented, challenges in terms of interconnect, a lot of bits and pieces, but I want to focus on the sustainability side of this. And there's been a certain amount of pressure that some of this growth demand has put on sustainable approaches, but, how are data center operators and their hyperscalers, really reacting to both the demand and, some of the opportunities that exist?

[00:01:12] Tony Lenoir: Yeah, so I've been looking into hyperscalers recently. As Google, Amazon, and Microsoft just released their latest sustainability reports in June and July. Meta will probably disclose theirs at the end of September. And, obviously, yes, there have been a lot of questions around their commitments in light of the, significant increases in, power requirements to power their data center facilities.

[00:01:37] Tony Lenoir: And really, what our findings show is that they rem- they remain committed to decarbonizing their power supply. They are still signing power purchase agreements left and right. In fact, they hit new records last year. Amazon is well above 40 gigawatts of secured, clean energy capacity. Microsoft is not too far behind and Google is also up there. So, you know, when you look at the top four hyperscalers, Amazon, Meta, Google, and Microsoft, they really dominate the corporate, renewable space. If you look at the group, the four hyperscalers, they're each at about 25% of their aggregate. And so it is significant. That said, we talked about increasing power demands, power needs, and that is leading to some setbacks, in terms of milestones that they are wanting to reach. Some of their executives have alluded to that in the sustainability reports that were just released.

[00:02:37] Tony Lenoir: So yeah, maybe a few setbacks as far as expectations for when those milestones will be met, but I think they remain on the right path. And certainly they seem to be committed to doing just that.

[00:02:52] Eric Hanselman: Yeah, I mean, it, it's heartening to hear that, in fact, there has not been a whole scale pullback because I think a lot of the speculation was that increasing power demand, everything was being driven by these wild AI demand curves was going to cause a lot of hyperscalers really to take some very significant steps back, when you start looking at some of their decarbonization commitments and what they were targeting.

[00:03:16] Eric Hanselman: But great to see that if we think about, especially the power purchase agreements, PPAs, seeing that volume has still continued because they've always been big drivers of PPA consumption. That’s been something that's been a big part of the hyperscaler power story.

[00:03:34] Eric Hanselman: Now, granted, we need to get to a grid that can start shifting a lot of that energy in ways that are more flexible. But hey, at least the investment is there, to be able to go fund some of those more sustainable approaches.

[00:03:46] Tony Lenoir: Absolutely. And actually, there are very interesting developments on that front. There is a difference between emissions reductions in terms of the energy that actually powers your facilities and the energy that you secure to match your energy requirements, right? A lot of the secured, renewable energy capacity is still in the pipeline, so it's not available yet.

[00:04:10] Tony Lenoir: This means that those hyperscalers in many instances still have to rely on conventional power generation. For instance, Microsoft has, as I said, they have about 40 gigawatts as we speak of secured clean energy capacity. And we can get into that a little bit more later. By the way, because clean energy has come to include nuclear, for instance. But anyway, yeah, 40 gigawatts of secured clean energy, but about half of that is operating at the moment.

[00:04:39] Eric Hanselman: Well, this is the challenge, right? Because you've now got, you've got interconnect delays on the generation side as well as on the consumer side. So yeah.

[00:04:48] Tony Lenoir: Yes.

[00:04:50] Eric Hanselman: But hey, good to know that is in the pipeline and that is at least in long term something it's actually headed towards there.

[00:04:57] Eric Hanselman: I'm curious about what's happening with renewables. We talk a lot about the benefits of the various aspects and carbon free. Yep, absolutely. But if we look at what those timelines are, at least in terms of standup, in terms of capital investment, wind and solar wind up being really fast to market.

[00:05:18] Eric Hanselman: But of course then we wind up running into those same problems with actually getting it connected to the grid. But that's something where if you look at some of the incentives around that, we've got folks who are really trying to race against the clock, in terms of getting some of this capacity online.

[00:05:33] Tony Lenoir: Yes, you're absolutely right. And I think you're alluding to the H.R.1 budget bill, that was enacted last year, or it's also known as the One Big Beautiful Bill Act, which accelerated the phase-out of production and investment tax credits for renewables.

[00:05:51] Tony Lenoir: Basically, those tax credits expire in 2027 for solar and wind unless you safe harbored for an extra four years by beginning construction by July 4th of this year. So actually, we're already past the deadline, and if your site had not broken ground by then, you could still get the credits, but you have to get your power plant online by December 31st, 2027.

[00:06:20] Tony Lenoir: So, the clock is really ticking.

[00:06:23] Eric Hanselman: Ooh, all right. So yeah, it's one, construction needs to have started, that gives you the longer timeframe, but if you haven't, you've then got that tighter timeline to be able to get the generation.

[00:06:33] Tony Lenoir: Yeah, technically it's still possible. Yeah.

[00:06:35] Eric Hanselman: Yeah, well, still, still, opportunities, however narrowing. But this is one of those things that actually I was looking at some of the broader global numbers in terms of renewables and taking a look at other parts of the planet that continue to bring renewables online in ever-greater capacity.

[00:06:56] Eric Hanselman: You look at India, China, some of the capacity that's going online there, that's now starting to become very significant factors. And I heard the idea kicked around this morning that you might get renewables actually outpacing coal in terms of generation capacity and that sounds like something that would be impressive in to and of itself.

[00:07:18] Eric Hanselman: But, I'm not going to hold my breath until that happens.

[00:07:20] Tony Lenoir: Yeah. Renewables definitely have the winds at their backs, regardless of policy incentives that may be in place or not. And I think one of the main catalysts recently is, for instance, the conflict in the Middle East. When you think about the disruptions that that's created in fossil fuel markets, governments around the world are looking at that and thinking, "Well, renewables, when they're up and running, they provide a certain amount of autonomy." Because the fuel, quote-unquote, that powers those solar and wind power plants is not something that you go out on the market to purchase. It's just the sun or the wind, right? So and if you think about it, a different type of clean energy technology, that's really what happened in France in the '70s on the back of the first, I think it was the OPEC embargo in 1973, and then you had the Iran revolution in '79.

[00:08:18] Tony Lenoir: But right after '73, the French government decided, "You know what? We don't ever want to be in this position where we are completely dependent on foreign markets to produce our own electricity." So they unleashed what was called the Messmer Plan in 1974. It was named after the French prime minister at the time.

[00:08:35] Tony Lenoir: And they embarked on one of the largest, fastest, nuclear energy deployments, ever. And today, they're essentially independent to produce their electricity. You can tell from my accent when I talk that I'm not from here. I'm originally from there and most of that energy is carbon free.

[00:08:56] Tony Lenoir: Actually, it's almost all of the French generation fleet is carbon free because aside from nuclear, the balance is mostly hydropower. And so, you know, 50 years later, they're essentially independent, but their generation fleet is also carbon free, even though initially that was not driven by a philosophical pursuit of cleanliness, if you will.

[00:09:21] Eric Hanselman: It was driven by scarcity. And this is something that, as you were pointing out, the war in the Middle East is renewing all of those same concerns about scarcity. But yeah, France's decision looks reasonably prescient, especially now. My understanding is they're also selling reasonable volumes of capacity to Germany at this point.

[00:09:39] Eric Hanselman: I don't know if they're currently a net exporter, but I believe they are. Don't quote me on that, but I'm pretty sure they are. And yeah, the conflict in the Middle East, and frankly, it's just when you think about it, this is like the third major shock to the global energy system in five or six years. We had COVID in 2020 and then Russia's invasion of Ukraine in early 2022. Three major shocks in six years is a lot.

[00:10:08] Eric Hanselman: Well, and it's something that precipitates action. And we've now got, and whether or not that happens to be greater reserves, new sources, again, the great benefit of wind and solar is you can stand them up quickly. And granted, you may need to buttress them with battery capabilities, but we're also at a point at which battery capabilities are doing a whole heck of a lot better.

[00:10:28] Eric Hanselman: And it looks like there's large capacity storage functionality that's starting to come online in a bunch of different places, new technologies that are out there, so making that a much more attractive approach, maybe not full base load capacity, but maybe getting close.

[00:10:44] Tony Lenoir: That's a good point. We are talking about deploying large amounts of renewable energy. We are still facing the issue of intermittency, especially from a data center point of view, where because of their SLAs and so on and so forth, they have to be on mostly all the time really. And, so certainly renewable, solar and wind intermittency can be a challenge there.

[00:11:07] Tony Lenoir: And so you want to firm that with energy storage as much as you can. And since we're on the topic of the hyperscalers, Microsoft is actually investing in the, I think Milan-based, battery energy startup that is looking at... Oh, I forget the technology at the moment. Forgive me. But, they're talking about a technology that would allow you to dispatch stored energy, from eight to 24 hours.

[00:11:38] Eric Hanselman: Oh, well that, that's the timeframe. Yeah, that starts to be an issue. Yeah.

[00:11:42] Tony Lenoir: Yeah. So yeah, they are considering those different angles, right? To power their facilities via all kinds of clean energy technologies.

[00:11:52] Eric Hanselman: Well, it's one of those things that I've always found particularly interesting about the battery perspective or storage broadly, which is that even relatively low efficiency storage mechanisms are really attractive because of the fact that when you have abundance, you've got a lot of it, and in fact, even if you can capture and harness even reasonable percentages of that, you don't have to be 100% efficient to be able to actually have a real impact on the grid.

[00:12:19] Eric Hanselman: Yeah, I think battery energy storage will be the next differentiator, the next major milestone when it's finally deployed at scale. The US is behind on that front, but it has a lot of battery energy storage in the pipeline, and yeah, I think the next critical step in the transition away from conventional generation.

[00:12:42] Eric Hanselman: And a lot of promise on some of the larger, non-lithium-ion technologies. There are a couple different sodium startups. There are a bunch of other technologies that look like they could actually do something interesting in the not too distant future. And speaking of sodium and water and things of that nature, you also are doing some work around water in data center use.

[00:13:01] Eric Hanselman: And of course, this has been one of those big concerns, about other aspects of data center resource consumption, which is their impact on water demand. And data centers are working hard to get much more efficient at the way in which they use water. But you'd looked at some of the things that might not be under direct consideration in terms of water impacts, that are also associated with data centers.

[00:13:25] Tony Lenoir: Yeah, exactly. And I think this is an aspect of the sustainability discussion that is really fascinating. And there's a lot of maybe misinterpretations out there. The hyperscalers in their latest sustainability reports reported direct withdrawals and direct consumption totaling about 20 billion gallons of water globally.

[00:13:49] Tony Lenoir: So that's what they use on site for cooling purposes mostly. And that, by the way, that figure includes estimates, internal estimates from Meta, because as I said, Meta's latest report is from last year. So that is a massive number, right? When you think about it, when you talk about billions. But when you put that in perspective, the US on an annual basis consumes a little over 100 trillion gallons of water annually. So really the amount of direct water consumption across the top four hyperscalers equals 0.02% of annual consumption in the US, annual withdrawals in the US. So that gives you a little bit of perspective.

[00:14:38] Eric Hanselman: A- and it's one of those things that if you start thinking about what that impact is, yes, you can look at a data center providing, significant local load on water resources, but yet that broad impact, as you say, still small fractions of a hundredth of a percent.

[00:14:55] Eric Hanselman: Now, comparably, they're not really exactly the world's largest consumer. Unlike energy, we can debate exactly how many percentage points of total electric demand they create.

[00:15:06] Tony Lenoir: Yeah, I believe US golf courses consume a little over 500 billion gallons of water a year, give or take. Yes.

[00:15:14] Eric Hanselman: Yeah, a, a slight difference in terms of, overall use.

[00:15:19] Tony Lenoir: Well, that said, you know, we're talking about averages here. Of course, some regions are going to be more water stressed than others. So, some of them, some regions are going to feel the impact of data center construction more than others. I live in Utah, it's a western state.

[00:15:32] Tony Lenoir: It's very dry, just like other southwestern states like Arizona, Nevada, New Mexico. So, this is going to be more of an issue here than it will be in say, east of the Mississippi in general. I guess I should talk first about the difference between withdrawal and consumption.

[00:15:49] Tony Lenoir: So, withdrawal is what you will withdraw from the domestic watershed, for the water usage across your facilities. And water consumption is basically what's evaporated, right? So technically, what's evaporated is not lost to the Earth, right?

[00:16:03] Tony Lenoir: It's just part of the water cycle. It's just that it may no longer be available directly to the watershed from which the water was originally withdrawn. It gets a little more complicated here. So yeah, some communities will feel the direct impact of data center water withdrawals more than others. But the other side of water consumption in general for data centers, which you alluded to in your question, is what is related to power generation, and that's where it gets very interesting. Conventional generation consumes a lot of water for cooling purposes. Think about coal power plants, gas-fired power plants.

[00:16:48] Eric Hanselman: You got those huge cooling towers out there. There's that, there's a lot of water going up.

[00:16:52] Tony Lenoir: Exactly. Yeah. But where it gets really interesting is that we talk about decarbonization, and as nuclear technology has made a big comeback in the last two or three years, specifically in relations to powering this AI-driven data center boom that we're all talking about. And that's great because it's carbon-free, it's baseload power, its proven technology, and we feel like, "Oh, yeah, this is a solution." But actually, conventional, traditional nuclear power generation consumes a lot of water. In fact, it's one of the highest consumers out there. We talk about decarbonization, yeah, but which kind? And this is another argument in favor of and wind because they do not require any water except for maybe a little bit here and there, a few gallons for cleaning, maintenance purposes.

[00:17:45] Eric Hanselman: But certainly not on the scale of a full-blown power plant. So, I'm curious, is nuclear actually consuming more water than coal or other fossil sources?

[00:17:56] Tony Lenoir: It's up there with coal as the highest consumer for cooling purposes. Yes, and if we're going to talk about evaporation in general, hydropower is also extremely water intensive. So, there you go, you have another carbon-free electricity generating technology that, yes, does not lead to emissions, but there are evaporation considerations there.

[00:18:23] Tony Lenoir: And I'll probably stop there because to be perfectly honest, hydropower is complicated, and evaporation, and there are different metrics when you consider evaporation linked to hydropower.

[00:18:34] Eric Hanselman: Right. Well, Once again, it's the point that you were making at the outset, which is that these are complex relationships, and you can push on one side of this equation and consumption pops out another. There's so many different aspects that are in play that it's hard to come up with a single answer for any particular approach, any particular direction, or the specific impacts, unless you really start to look at this very broad set of impacts.

[00:19:03] Eric Hanselman: And that's, that makes it all the more challenging.

[00:19:05] Tony Lenoir: It's very difficult. Lots of parameters to take into consideration, including where you're going to site your data center facilities, right? We actually, a group of us were having this conversation this morning. For instance, evaporating cooling towers are one of the most effective technologies to cool, at the facility level, to cool data centers.

[00:19:29] Tony Lenoir: That's going to be particularly effective in a hot and dry climate. Hot and humid, less so. So, you're going to consume more water, more power there, right? So as you said, as you alluded to, some trade-offs, and you always have to look at those trade-offs.

[00:19:45] Tony Lenoir: And I think the climate conditions of, yes, the locations that you target to site your facilities are a very critical factor there in terms of resulting carbon footprint, water usage, and so on and so forth. And that's why I said it's fascinating, and this is maybe one of the reasons why we do what we do, right?

[00:20:07] Eric Hanselman: Well, it's more and more questions and more interesting insights. I mean, you talk about siting, you could go head up to north of the Arctic Circle, find some good Geospace, be up in Iceland, and yet now you're located physically far enough away that latency becomes a larger concern.

[00:20:27] Eric Hanselman: You've got other aspects. It is one of those things that definitely keeps us, keeps us engaged in thinking about, about a lot of this in so many different dimensions.

[00:20:36] Tony Lenoir: Absolutely. Also keeps us humble.

[00:20:39] Eric Hanselman: Very much so. Well, this has been great, Tony. Thank you so much for coming on. I appreciate, all of these insights and we'll give a little teaser for an upcoming webinar that we'll actually be doing a follow-up episode on, that'll actually talk about some of the implications and what's happening in communities more broadly about thoughts about data centers and some of the challenges that exist.

[00:21:02] Tony Lenoir: Thank you, Eric. Always a pleasure.

[00:21:05] Eric Hanselman: It has been great. until I catch you on the next one. But we are at time for this episode of Next in Tech. Thanks to our audience for staying with us, and thanks to our production team, including Sophie Carr, Feranmi Adeoshun, and Dylan Schiebel on the marketing events teams. If you liked this episode, please subscribe or like us. I hope you'll join us for our next episode, because there is always something Next in Tech.