A recent International Energy Agency report states that global spending on data centers will reach $580 billion this year — exceeding investments in new oil supplies by $40 billion.
These figures highlight significant shifts in the global economy. The comparison between data centers and oil is particularly relevant given concerns about the potential for generative AI to exacerbate climate change.
Kirsten Korosec, Rebecca Bellan, and I delved into the report’s key findings on the latest episode of TechCrunch’s Equity podcast.
Undoubtedly, these new data centers will demand substantial power, potentially straining already burdened electrical grids. However, Kirsten highlighted a silver lining: the potential for solar energy to power many of these new projects, which could also foster new opportunities for startups focused on innovative renewable energy solutions.
We also discussed the financing of these projects, with OpenAI reportedly committing $1.4 trillion to data center construction, Meta pledging $600 billion, and Anthropic recently announcing a $50 billion data center initiative.
Below is a preview of our discussion, edited for brevity and clarity.
Kirsten: Here’s the potential positive aspect, in my opinion. Tim De Chant, our climate tech reporter, has extensively covered data centers and how many are transitioning to renewables due to regulatory ease and cost-effectiveness. Obtaining permits for solar panel installations adjacent to a data center is significantly easier.
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Therefore, this could greatly benefit companies innovating in renewables or data center design, particularly those focused on technologies to reduce global emissions.
However, the sheer magnitude of the investment is what truly stood out to me. As a former energy reporter, I understand the extensive resources dedicated to oil exploration.
Rebecca: Absolutely. And a significant portion originates from the U.S. The report indicated that the U.S. will account for half of the electricity demand, with the remainder split between China and Europe.
Another notable point is that most data centers are being built in or near cities, typically with populations around a million. This presents significant challenges related to grid connections and pathways. As you mentioned, renewables will need to be a priority — driven by sound business practices rather than solely by environmental policies.
Kirsten: Redwood Materials’ new division, Redwood Energy, will be a company worth watching in this space. I attended their launch event a few months ago, where they showcased their plan to repurpose older EV batteries that are not yet ready for recycling to create microgrids specifically targeting AI data centers. This approach could alleviate the grid concerns you raised.
The key question is: Will other companies follow suit? Are there other entities like Redwood Energy pursuing similar initiatives, and what impact could they achieve? The pressure on the electrical grid, especially during peak demand periods like summer in regions such as Texas with rolling brownouts and blackouts, is a serious concern. This could stimulate new investments in companies adopting Redwood’s approach.
Anthony: This also raises the question of the impact on our living environments. Even if data centers aren’t located directly in cities, large-scale construction will undoubtedly transform the landscape.
Furthermore, the feasibility of building all these planned data centers is uncertain, given the massive investments required.
Consider OpenAI, a company that has generated considerable discussion about its revenue compared to its trillions of dollars in capital commitments over the next decade. There was also the controversy surrounding their CFO’s suggestion that the government should guarantee their loans for data center construction. While she later clarified her statement, it appears they have sought expanded tax credits from the CHIPS Act.
This endeavor will likely require collaboration between companies and the government, or at least government consideration in the coming years.
