Next in Tech | Ep. 287: AI Infrastructure - Boom and Backlash

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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 another angle around AI infrastructure and some of its impacts, and an upcoming webinar, that's going to be digging into these in great detail.

[00:00:23] Eric Hanselman: With me to discuss it are Tony Lenoir and Matt Richesin. Welcome back to the podcast, Tony, and welcome to the podcast, Matt.

[00:00:31] Tony Lenoir: Hi, Eric.

[00:00:31] Matthew Richesin: Great to be here.

[00:00:32] Tony Lenoir: Hey, Matt. Yeah, good to be here.

[00:00:34] Eric Hanselman: Well, it's great to have you here. And we've talked a lot about demand, about the massive build-out that's happening with data center infrastructure, and some of the real pressure that AI is generating for more capacity, more functional environments, and how the data center industry is responding.

[00:00:55] Eric Hanselman: But the webinar's going to be talking a lot about not only some of that background, but really what are the aspects of that broader community capabilities, some of the regulatory environments, a lot of what's really going on in the background. Tony, you and I in a previous episode were talking about water impacts, but, of course, data center builds have got a whole set of infrastructure demands.

[00:01:19] Eric Hanselman: They're pushing the grid, they're pushing water tables. There’s a lot that's going on. What are you going to be talking about? And I guess from the background, what are the kinds of issues from the data center build side you're going to be looking at?

[00:01:30] Tony Lenoir: Sure. Well, you know, I thought it was interesting when you reached out to us about this topic. I felt oh, it's almost like this is a hot topic or something. It's almost like we're seeing headlines about the impact of data center growth on communities, specifically here in the US because this is what we'll be focusing on during the webinar in a couple weeks. And yeah, as you said, the impact on the power infrastructure, the impact on watersheds, noise, the visual impact on rural landscapes, the questions that people may have on unemployment. It really touches on many different aspects of our lives really. Just like previous technology breakthroughs or technology revolutions, industrial revolutions generated concerns in the population before.

[00:02:17] Tony Lenoir: But yeah, we are at this point, lots to talk about today. We can just, we can just jump in on whatever you want to focus on.

[00:02:26] Eric Hanselman: We've talked about the challenge in actually procuring power, and impacts on water, and some of the reactions and concerns about water. But of course, there are a whole set of other aspects about siting the data center, the build process itself.

[00:02:42] Eric Hanselman: And we talked certainly about power. One of the things, of course, that's coming up now is on-site power generation, which is one more piece that starts to come into the equation. You’ve now got concerns about the noise and potential pollution that gets generated. It really was initially the diesel generator concern, but now you've got 24/7 power generation in some sites that we're looking at as well.

[00:03:06] Eric Hanselman: So, a set of concerns that get raised there on that front.

[00:03:10] Tony Lenoir: Yeah, absolutely. The on-site generation development in and of itself is a result of the mismatch between data center construction timelines and the time it takes to build the power infrastructure to meet the electricity demand from data centers, from these new data centers. And so, what we're seeing today is that, and more data center developers are adopting generation setups, and also policymakers are pushing in that direction because it helps solve a couple issues that they're facing with their constituents. It helps them support data center growth and helps support speed to power, energizing those data centers. And also, it helps keep electricity rates in check for existing ratepayers. At least that is something that they can turn to their constituents and say, "Well, you know, you’re actually not paying for this new infrastructure, the data centers are." There is a big trend in that direction, but obviously that adds to the concerns among communities because it adds to the on-site infrastructure that they're seeing pop up next door.

[00:04:22] Tony Lenoir: It's not just the data center itself, it's also a gas power plant, transmission lines, and so on and so forth.

[00:04:31] Eric Hanselman: Well, yeah, that, that is a situation where we're there's that trade-off, right? The, the facility says, "Hey, we can generate our own power," and now you've got gas turbines spinning up that, that add one more aspect to all of that, which of course starts to raise more concerns in the communities that are adjacent to them.

[00:04:51] Eric Hanselman: And it's leading to, we've all heard the acronym NIMBY. And actually, the other thing I should also say is, on the webinar there, Dan Thompson and Monica Holinka are also going to be on talking about their particular aspects of this as well and will be joining you there. But, I thought one of the acronyms that I hadn't heard before that Dan had mentioned was BANANA, which is build absolutely nothing, anywhere near anyone.

[00:05:16] Eric Hanselman: But again, a whole set of community concerns that are being raised, because of some of the concerns about the impact and also I think broader concerns about the technology in general. But, Matt, that's something that you've been spending a lot of time with.

[00:05:29] Matthew Richesin: It is, yeah, something I've been really interested in the last couple of months. I've sort of been in charge, along with Stephanie Williams, with tracking all of the early-stage cancellations and delays and things like that. And so, I sort of got interested in it through that. And to be clear up front, because I think I should here, I'm not using NIMBY as a pejorative kind of a word.

[00:05:52] Matthew Richesin: I'm using it as the academic concept, of this type of opposition, which is a specific kind of opposition, which is its local opposition to unwanted development with the caveat that these people do often recognize and concede that the development itself is needed. It's just not here. Right? It's not, it's not appropriate for this location, which I think a lot of people don’t fully recognize when they're using the word. It kind of gets used as a catch-all for any kind of opposition, right?

[00:06:22] Eric Hanselman: It's the old guy, "Get off my lawn," thing, right?

[00:06:25] Matthew Richesin: Yeah. But with that in mind, I think it makes it a lot more... It's a much more difficult problem than if they were actually maybe upset about the data centers. When I was going to conferences and watching talks or watching podcasts, the narrative always seemed to be around education.

[00:06:43] Matthew Richesin: If we just give them information, they'll come around surely.

[00:06:47] Eric Hanselman: If only they knew then.

[00:06:50] Matthew Richesin: If yeah, if we're not that bad, we're not as bad as you think we are, right? It's like surely, you'll come around. And also, I grew up in a very rural area and I know a lot of people that are against data centers, and that bring up stuff like the water argument and things like that.

[00:07:05] Matthew Richesin: These are also people that play golf and take their car to the car wash, you know, every other day, which you can't do if you're worried about water. And I think maybe the mistake that the industry has made is when you see those kind of logical inconsistencies, that they go straight to ignorance, I guess, as a reason for it.

[00:07:23] Matthew Richesin: From my background, I have a PhD in psychology, I think of it more when you see those kinds of inconsistencies, there may be ignorance there. Really what it probably is that's just not the real reason why they're upset. It's something kind of hidden back behind that they're using these things as like a post hoc justification, to argue about. I looked into that and I'm not going to go into too much detail, but I looked into some of the psychological theories behind NIMBYism and things like that. And what I found more or less corroborates that idea that at its foundation, it has more to do with place protection, like seeing a large development come in as a threat, and they're trying to protect against that threat from changing the place that they live. And I think this is really important as we've seen the opposition jump up in a more viral way as the data centers have been moving out into these more rural areas, because that's where it's the most profound change, and that's where you're going to get the most profound pushback. And I think that's exactly what happened, is to get that NIMBY pushback in these rural areas, and it went onto the internet, and then it just sort of jumped and spread from there into this bigger thing.

[00:08:29] Eric Hanselman: And if you think about what the size the facilities are, it also is something that unlike the big box company distribution centers and things of that nature, you've also got the technology tinge to it, and a whole set of those other aspects of the unknown that get generated. There’s a warehouse that's going up someplace. People have an idea of what that's going to be. They can figure out the traffic impacts, but data centers are still something of an unknown.

[00:08:57] Matthew Richesin: I would say exactly right.

[00:08:58] Matthew Richesin: There was another part of that I looked at with... It had to do with symbolic politics theory. And the idea really is that a lot of these developments are being pushed back on, not because anything of the development itself, but what it represents.

[00:09:10] Matthew Richesin: Obviously, what the data centers first represent right now is AI, and that seems to be what most people are focusing on. And the marketing around that, from someone with a psychological background, has been totally baffling to me. It seems to be all negative uncertainty.

[00:09:27] Matthew Richesin: It's going to take the jobs, it's going to hack things, it's going to get loose, and we don't have control over it. And that's from the companies themselves, right? It’s a very unusual strategy to me, which I guess all publicity maybe is good publicity, but that I think only holds if engagement is the marker of success.

[00:09:46] Matthew Richesin: And I think the data center industry now is finding out that engagement might not be great, at least in these early permitting stages.

[00:09:53] Eric Hanselman: Especially unconstrained and, yeah, when you're getting a message out there on that level, probably not achieving the ends you're actually shooting for. But you know you'd mentioned that there are similarities between what we see in some of the community response now to other technology transitions. What are the parallels?

[00:10:13] Tony Lenoir: Yeah, if you look back at every technological breakthrough, technological transition has always brought some concerns among communities. Here in the US, you can think of the railroad in the early 1800s. Even steel framed skyscrapers generated anxiety among urban communities.

[00:10:36] Tony Lenoir: People wondered about structural robustness. Worried about the impact on the urban landscape and so on and so forth. Even electricity itself and of course it's very much tied to data centers, generated anxiety, even fears. And that was amplified by the war of the currents between Thomas Edison and Nikola Tesla, which involved PR campaigns and examples of electrocution and so on and so forth.

[00:11:07] Eric Hanselman: Yeah, electrocuting elephants! It's like, holy cow. I guess hopefully we don't have to go quite that far, in convincing data center safety or I guess whatever the next stage of data center conversations happen to be. But yeah.

[00:11:21] Tony Lenoir: Yeah. Of course, it's a little different. Obviously, the data center boom seems to have broader repercussions, and I would say it's probably closer to the development of the railroad network system here in the US because at the time, there were concerns around noise, around pollution, around the impact on rural communities. And I think people worried about how that would impact cattle, the production of milk, and so on and so forth. So, it may be closer to what we're experiencing now. But I guess long story short is that in the end, communities turned around and began to accept those massive changes because ultimately, they brought with them further prosperity and economic development. I guess that's maybe a positive way to look at that. I suppose we focused more on the negative aspects of the boom in the previous few minutes, but we have to try and keep in mind what this could be all about ultimately.

[00:12:26] Eric Hanselman: Well, and that actually gets back to Matt's point, about concerns in the community about local benefit because of course that is a little more abstract when you start getting to data centers.

[00:12:38] Matthew Richesin: It is. I think that they're starting to address that and bringing more benefits to the communities now. I think maybe the thing to work on overall is they've always done that. They've always brought some kind of benefits or at least a lot of companies have. But the scale of investment has jumped so much, and I don't know that the scale of that community benefit has jumped along with it.

[00:13:00] Matthew Richesin: So, I think maybe they need to find kind of that sweet spot where of money-- They're spending billions of dollars. How much, how much are they actually giving to the community for that is maybe something they could improve on.

[00:13:13] Eric Hanselman: It gets back to that question of, what is a fair distribution of some of those benefits, beyond just the square footage of the data center itself?

[00:13:23] Tony Lenoir: Yeah, I wanted to add to this that as you're right, Eric, There are a lot of uncertainties. This is a very much new territory for all of us, really, and especially on top of the data center infrastructure itself, there are all the uncertainties related to AI, right? We have no idea how it's going to impact lives, the world, in the next 20 years exactly. But there are concerns of it that are very real, very concrete, very certain. Actually, Matt and I have had those discussions internally. A few weeks ago, we were talking about, we were putting this report, this 101 report on the impact of data center growth on communities, and we're also preparing for our webinar. And so, of course, there is the electricity angle, prices, water, noise, and so forth. But the visual impact, you know, I was wondering, even if we were to solve everything else, the electricity issue, water, and so forth, would people still be happy with one of those massive, warehouse-looking buildings next door? That, that is a real question that I have. I suspect that most people would not be happy with that, especially in the more rural areas, and then you get into the psychology aspect of it all that Matt was talking about

[00:14:39] Eric Hanselman: Well, it is, especially in a lot of places where data centers are headed, you know, where you got developers who are looking for large open campuses, and guess what? That tends to be large swaths of undisturbed and undeveloped land typically. So, yeah. Hey, one thing, actually, Matt, you'd mentioned the numbers in terms of delays and pushbacks of development.

[00:15:03] Eric Hanselman: Of course, we've got a whole bunch of data that we've been looking at in, at the level at which projects are being impacted. What’s that level today, and are there regional differences between North America, Europe, Asia Pac?

[00:15:17] Matthew Richesin: I have really mostly focused on the US stuff that I've done. But I would say in the US, if we're going by sheer volume, I would say that the local moratoriums and bans probably went up in terms of numbers overall. I think there's a few different sources that we've been looking at, but I think it's safe to say there's probably at least 250 active moratoriums or bans at the local level across the US. Really heavy in of the Midwest and the Southeast, I think like Ohio and Michigan are maybe one and two on those. And then places like North Carolina, Georgia, even places like Tennessee that don't have much of a data center footprint have a lot of bans in it. Not as many of the major markets are seeing that. I do think there's a few like Denver who passed a moratorium. Hillsboro and Oregon, which is a major market, passed one. That state seems to have turned to where they are not too friendly to data centers coming in now. But more and more you are seeing things at the state level vary a lot. It could be tariffs or repealing tax credits that were placed in the past. It could be restricting like where the data centers can go within that jurisdiction. It could be an outright moratorium. Not many of those, I think only two actually, passed to where they went to the governor, one being Maine, which it was vetoed, and the other being New York, which was ultimately passed.

[00:16:52] Eric Hanselman: And in terms of impacts on active projects, I'm guessing that if they're projects that have already broken ground, you know, they're probably underway, and this is typically moratoriums on new builds, right?

[00:17:04] Matthew Richesin: Yes, this is usually going to be things that are either very early stages or not in any of the pipelines yet. Usually, it's not retroactive to where it would affect things that have already entered into and got approvals and things like that.

[00:17:16] Eric Hanselman: Although actually you were mentioning, some of these tax break rollbacks. Those do seem to have some.

[00:17:23] Matthew Richesin: Some are retroactive. Yeah.

[00:17:25] Eric Hanselman: Yeah. So how do we move forward on this? And I guess what are effective paths to be able to, because we're going to need capacity in some form or fashion and in some locales.

[00:17:38] Eric Hanselman: How do we work through this? And what are ways in which we can both better engage communities and look at the way in which a lot of developers are approaching the market?

[00:17:49] Matthew Richesin: Yeah, I can start, with maybe the early stage engagement and things like that. So, I think the education approach probably isn't going to work. I'm not on the ground to see if it is working, but it seems like the sentiment just continues to get worse, so I don't think that approach has been working or probably will. I think probably the best way forward with engaging with communities is kind of what I've been seeing more and more in the headlines lately. I think companies have realized this too, and you see more and more compensation-based engagement with the communities, whether it be giving technology to the schools, like outfitting the schools with new laptops and things like that over the course of the time that the data center will be there, working with charities, things of that nature.

[00:18:34] Matthew Richesin: I think that's probably the best way to deal, with people that, with groups that just don't really want you in the community, but they probably could be swayed if the benefit to the community was good enough, kind of thing like that.

 

[00:18:46] Eric Hanselman: I thought one of the things that  I noticed in the report, and the traditional way for a lot of these facilities to be built was, I guess relatively typical for a lot of big project approaches, was this idea of the process is design, announce, defend. And just to charge boldly through whatever opposition there happened to be, make sure that you're far enough down the road that you really couldn't be deterred, and then just assuage any concerns that get raised fairly late in the process.

[00:19:18] Eric Hanselman: And it sounds again like one of the things that you're identifying is that the extent to which communities can be engaged very early in that process, it hopefully has, has better impacts and starts to maybe mitigate some of those concerns.

[00:19:35] Matthew Richesin: Yeah, when it comes in fully formed, it can often look like there's collusion going on behind the scenes. Whether there is or not, it can often look like that to the locals coming to them in these late stages. I think bringing them in earlier and negotiating and talking to them is going to help out a lot, when it comes to the sentiment.

[00:19:53] Matthew Richesin: Because, when you jump in those late stages, the locals are kind of on the back foot, like they're already defending. So, it's going to take a lot more work to get them back on your side as opposed to if you bring them in early and maybe even involve them in the planning. You can find out what they need, what the town needs, like their specific needs, what would sway them, what kinds of things would help them, kind of thing like that.

[00:20:16] Tony Lenoir: I would add as far as public sentiment, and besides engagement, there are also market forces that are going to, I think, help in the long run. For instance, there's no question that data centers consume a lot of electricity, consume a lot of water, although this is nuanced when you compare it to other sectors such as irrigation, golf courses, filling swimming pools, and so on and so forth. But you have to keep in mind that the data center operators themselves, they want to be as efficient as possible just because those are massive expenses for them. Electricity alone is one of the, if not the most important expense for a data center operator. So, it is in their interest to be as efficient as possible. And there are advances such as the move towards liquid cooling, which is going to be dictated by the growing intensity of computer racks in data centers. That is going to minimize noise in the long run, right? Because you'll reduce your usage of fans. There are talks of replacing diesel generators with grid scale, battery storage units, which would also minimize noise. So, there are advances that are again, market-driven forces that could help as far as public acceptance. That said, for now, it is definitely a major issue and we were talking about Monica, who will be talking about the impact that this could have on the midterm elections here in November in the US, because it is one of the most bipartisan issue in recent US politics. Before we started recording this call, we quickly chatted about this event that united both Bernie Sanders on the left and Steve Bannon on the right.

[00:22:01] Tony Lenoir: Steve Bannon, Trump's former advisor. So it is quite something to see, those two different individuals, sharing the same stage in an environment in which there is political foment and certainly the various participants are looking for, various banners to carry, and guess what? This happens to be one more, right? One more thing to add to the fray.

[00:22:32] Eric Hanselman: Yeah, we're in the season in which the various political participants are looking to align themselves with various movements and identify across various broad groups. Big topics like this wind up being something that certainly comes into play.

[00:22:48] Eric Hanselman: Well, it will be interesting to see how this all plays out. And certainly you'll be digging into it with Dan and Monica on the webinar, but it's been great to get a preview of this. Thank you both for being on.

[00:22:59] Matthew Richesin: Thanks for having us.

[00:23:01] Tony Lenoir: Yeah. Thank you, Eric. Always a pleasure.

[00:23:03] Eric Hanselman: And that is it for this episode of Next in Tech. Thanks to our audience for staying with us, and thanks to our production team, including Dylan Scheible, Sophie Carr, and Feranmi Adeoshun on the marketing and events teams. And if you liked this episode, please subscribe or like us. I hope you'll join us for our next episode, because there's always something Next in Tech.