How can we cost-effectively balance data centre and other energy demands with a clean power future?

Energy demand is on the rise.

Powered by a shift towards electrification, changing manufacturing and societal trends and advancements in technology and digital innovation (hello, AI), anticipated energy needs could triple by 2030 in some markets.

This is creating a large demand for more data centres globally, a trend putting sizeable strain on local power networks, “exacerbated by the huge mismatch between rapid data centre construction times and the often sluggish pace of expanding and strengthening grids and generation capacity.”

What does this mean for people, industry and the planet as our cities look to meet this increasing demand, reach climate goals, keep costs affordable and make city plans as efficient as possible for the benefit of current and future generations?

We can’t wait any longer to discuss cities’ changing development needs.

Gen Z may be seen as the most digitally proficient generation to ever exist, but applying an 'always online' view has become a societal norm across all generations. Pair that with how much e-commerce is transacted online and the prospects of AI to overhaul everything we do and it’s never been clearer that data powers our lives.

But that usage has deep costs we can’t see.

Digital solutions, such as AI, are on track to exceed power utilities' capacity to support them by 2027, with 40% of existing data centres in line to face power shortages in the next three years (something that has companies striving to re-design around and aiming to lower consumption).

It’s no surprise when Goldman Sachs reports that each ChatGPT query uses ten times more power than a Google search and AT&T Chief Executive, John Stankey, calls existing strains on systems, “the next big social and economic issue in the United States.”

My Avison Young colleagues agree. We see firsthand the direct toll and potential opportunities this demand has on development projects.

With so much taxing our energy grids and creating bottlenecks, the need for innovative solutions is becoming more urgent:

In the United States, Minnesota data centres face load-shedding challenges, requiring strategies, like offloading non-critical systems on a scheduled basis to reduce power demand during peak times, and relying, as is often the case, on backup generators to ensure continuous operations during outages. In parallel, many are trying to evolve to meet this moment and showcase what’s possible, like Iron Mountain, which uses 100% renewable power, natural cooling, on-site solar power generation and meets BREEAM design certification.

In Canada, most provinces have started limiting industrial expansion because they can’t fulfil the accompanying power needs. Providers are becoming increasingly selective in granting energy blocks and access to power grids. But, what if data centres were more thoughtfully designed for a world where waste byproducts become a community value-add and open up possibilities? It’s happening in Quebec, where data centre waste heat is being used by greenhouses to grow more than 80,000 tonnes of food.

In the United Kingdom, the National Grid is carrying out the Great Grid Update. This is the largest investment in the UK grid since the 1960s. It will see five times more investment in transmission infrastructure in the next six years than has been delivered in the past three decades. It is also reforming the grid connections process to give priority to projects that are ready to be built, rather than those waiting in the queue, with changes due to be implemented in early 2025.

Currently, commercial and residential developments trying to secure a grid connection can face wait times of up to 15 years; as a result, development projects are being paused indefinitely or significantly delayed because of grid constraints. The worst issues are in areas where more data centres are proposed, as planners and developers come up against a problem that is only forecast to keep getting worse, creating new needs and desires to make sure we get this right.

Left unaddressed, power demand that exceeds current constraints brings forward significant challenges for city planners and developers:

• If we are prioritizing what gets power, will you heat homes or businesses?

• What types of buildings get priority space, the new data centre or the new affordable housing complex?

• Just how important does energy-efficient design need to become, must it be standard practice, include priority retrofits and have clarity in national and local building codes?

• How do we balance energy needs for data against other priorities, such as net zero goals or affordable housing solutions and must we choose?

• How do we balance prioritising land for data centres in urban locations, which typically employ far less people than a traditional employment use?

• Should denser development be considered?

• Are all carbon options being explored thoroughly, such as the full potential of large battery storage for grid stabilization – currently expanding at a breakneck pace in the US – as an alternative to fossil fuels and nuclear?

• How do we find the best way forward that also allows us to maintain climate, housing and affordability aspirations, all important to give our younger generations, like Gen Z, true optionality towards their best possible futures?

Full of potential problems that could make a tough dynamic even worse, how do we make sure we have the right conversations at the right times?

A place-based public-private partnership approach is needed to balance priorities and co-develop the best fit-for-purpose solutions.

There will not be a one-size-fits-all solution to address challenges like these. Instead, we must explore locally – leveraging the social-value-driven partnerships and solutions that meet each region where they are.

This requires an approach that balances conflicting priorities and co-develops place-specific solutions with local stakeholders. Such an approach encourages holistic and innovative solutions, such as prioritising land-use allocations or incorporating data centres into urban developments to recycle waste heat, while also managing energy demand through new technologies or policies.

The demand is there. It’s on us to make sure we see this for what it is, with the right amount of conversation, critical thinking and social value creation that serves as a roadmap to benefit current and future generations.