Datacenter operators are significantly increasing capital spending on facility expansion driven by rising energy costs and accelerating AI training demands.
The global datacenter market is experiencing substantial growth, driven by increasing demand for digital services and rising operational costs, particularly electricity. According to the latest IDC reports, AI spending is expected to double to reach $632 billion by 2028, with GenAI spending reaching $202 billion, representing 32 percent of overall AI spending. This surge underscores datacenters as a critical focus for investment, yet the escalating price of electricity and growing energy consumption pose significant challenges to operators. The EIA projects electricity demand will be approximately 2 percent higher in the second half of 2024 compared to the same period in 2023, primarily due to growing demand from data centers. Electricity constitutes the largest ongoing operational expense for datacenters, accounting for 46 percent of total spending in enterprise facilities and 60 percent in service provider operations.
As AI adoption accelerates, energy demands are intensifying dramatically. Datacenter capacity supporting AI workloads is expected to achieve a compound annual growth rate (CAGR) of 40.5 percent through 2027, while AI-related energy consumption will rise at a 44.7 percent CAGR, consuming a large portion of total datacenter electricity. IDC forecasts global datacenter electricity consumption to more than double between 2023 and 2028, with a five-year CAGR of 19.5 percent, reaching a total of 857 Terawatt hours (TWh) by 2028. This unprecedented growth reflects the energy-intensive nature of AI workloads reshaping the entire sector.
Electricity costs are climbing rapidly due to geopolitical events, environmental regulations, and extreme weather patterns exacerbated by climate change. IDC projects electricity spending growth rates exceeding 15 percent CAGR in key markets including the U.S., Germany, and Japan. According to a Goldman Sachs report from May, data centers are expected to account for 8 percent of the power generated in the U.S. by 2030, compared with 3 percent in 2022. To address these escalating costs, the IDC report recommends investing in energy efficiency measures such as advanced cooling technologies and improved chip performance, while emphasizing renewable energy sources, particularly solar and wind, to offset operational costs and support sustainability goals.
In response to surging demand, major utilities are securing substantial datacenter power agreements. Constellation Energy signed an exclusive deal with Microsoft to provide 835 MW of energy by restarting a Three Mile Island nuclear plant unit. Ameren secured a deal for 250 MW with a data center and added 85 MW for smaller facilities across Missouri and Illinois. American Electric Power signed letters of intent to provide an additional 15 GW of data center power by decade's end, while Pinnacle West Capital holds commitments for over 4,000 MW from data center customers with a backlog exceeding 10,000 requests. AES signed a 310 MW agreement with Google for Ohio data centers and a 727 MW deal in Texas under a 15-year power purchase agreement. Talen Energy announced a 960 MW deal to power Amazon AWS' data center campus in Pennsylvania, Exelon is in the engineering phase for more than 5 GW of data center capacity, Alliant Energy executed multiple undisclosed power supply agreements, Xcel Energy agreed to supply power to Meta Platforms for a Minnesota data center operational by late summer 2025, Entergy received legislative approval to support Amazon AWS' Mississippi facility, and NextEra Energy added 3 GW of renewable and storage projects, including Google's 860 MW demand for data centers.