Separating Signal from Background Noise in the Data Center Sector Marketplace
In the bustling world of data centers, a key challenge facing utilities is the hype surrounding the data center market, which has made planning a complex task. Many customers are seeking large, contiguous infrastructure that can be densified incrementally, but the volume of data centers in development may exceed the actual demand.
This oversupply is causing concerns among industry leaders. For instance, Chris Sharp, CTO of Digital Reality, has spoken out about the issue of overstated power capabilities in the data center market. Sharp predicts that there will be "very big challenges and failures" when customers overestimate their peak needs and underutilize infrastructure.
One of the reasons for this overestimation is the term "braggawatts," which refers to overstated power capabilities in the data center market, often without fully secured permits, interconnection, or financing. This practice has raised eyebrows, with Alibaba's chairman Joe Tsai expressing concerns about a potential bubble in data center construction.
To combat this issue, utilities are becoming more discerning, looking for customers and developers that make realistic requests and actually use the capacity they ask for. Working with utility operators is crucial to ensure they understand power requirements, particularly for AI inference, which needs to be close to users, data, and other models to meet growing complex inference requests.
Proximity to central business districts is also critical for data center development to reduce latency and meet throughput requirements. In Germany, the most important actors leading the planning and construction of data centers are Digital Realty Trust, NTT, CloudHQ, VIRTUS Data Centres Ltd, and Equinix. These companies run multiple large-scale facilities, such as Digital Realty Frankfurt Campus and NTT Frankfurt campuses, with Germany having over 230 data center facilities concentrated particularly in Frankfurt and Western Europe.
However, the lack of power availability in the right places is a major constraint in data center development. Enchanted Rock, a fossil gas microgrid developer, predicts that the data center boom will pause, not burst, due to this issue.
Notably, some major players have paused their data center construction projects. For example, AWS has paused a portion of its leading discussions on colocated data centers, particularly those abroad, according to Wells Fargo research. Microsoft has also paused the construction of data centers in New Albany, Ohio.
Despite these challenges, the need for data centers remains high due to explosive, actual demand growth for compute, leading to actual need for lots of gigawatts of new data centers. The paradox is that the noise in the data center market may obscure real demand for power.
In conclusion, navigating the data center boom requires careful planning, realistic estimates, and collaboration between data center developers, utilities, and power providers to ensure the right infrastructure is built in the right places to meet the growing demands of AI and other computing needs.
