Podcast Summary: Open Circuit – "The Data Center Boom: ‘All the Cheap Power is Gone’"

Podcast Information:

• Title: Open Circuit
• Host/Author: Latitude Media
• Description: The energy transition, decoded. Every week, three industry veterans explore the tech breakthroughs, market shakeups, and policy shifts that are driving the biggest industrial transformation in history.
• Episode: The data center boom: ‘all the cheap power is gone’
• Release Date: February 21, 2025

1. Introduction to the Data Center Boom

The episode kicks off with Stephen Lacy, the Executive Editor at Latitude Media, introducing the theme of the week: the burgeoning growth of data centers and its significant impact on energy demand and grid infrastructure.

Stephen Lacy [00:36]:
"All the cheap spots are gone. Like people have been mining stuff since 2021. These locations are under construction and already online."

2. The Formation of Stargate and Massive AI Investments

The conversation delves into the recent formation of Stargate, a consortium comprising Trump, OpenAI, Oracle, and SoftBank, which has pledged a staggering $500 billion towards building the world's largest AI computing and energy infrastructure. This move aims to accelerate AI advancements but poses substantial questions regarding the actual computing power required.

Stephen Lacy [02:28]:
"At Trump's inauguration last month, the tech industry's most powerful executives filled seats that were typically reserved for foreign dignitaries."

Jigar Shah [03:07]:
"We have to get this stuff built so they have to produce a lot of electricity and we'll make it possible for them to get that production done very easily."

3. Power Demand and Grid Capacity Constraints

A critical bottleneck in the data center expansion is highlighted: power availability and grid capacity. With tech companies projected to invest $1.3 trillion globally into data centers over the next five years, the demand for electricity is set to surge, raising concerns about grid resilience and the ability to meet constant high loads.

Jigar Shah [04:22]:
"We have about 25,000 megawatts of new load that is credibly signing contracts for 2030 delivery or before right now. And 25,000 megawatts is not a lot per se. But 25,000 megawatts at 24 by 7 is highly disruptive."

4. Affordability and Regulatory Challenges

The discussion transitions to the affordability of expanding the grid to support data centers. Jigar Shah emphasizes the high costs associated with infrastructure upgrades and questions who should bear these expenses—data center companies at industrial discount rates or the broader consumer base through elevated energy prices.

Jigar Shah [05:33]:
"Who pays for that? Is that something that you give the data center companies the low, low industrial discount rate and then you socialize the costs of all of the additional infrastructure?"

Katherine Hamilton adds that the planning process must adapt to distributed data centers, which can mitigate some grid constraints by leveraging local renewable resources and distributed storage solutions.

Katherine Hamilton [07:24]:
"We have to look at what the planning and are there, is there some headroom in our natural gas infrastructure? What are the local constraints?"

5. The Trump Administration’s Energy Dominance Agenda

The conversation examines how the Trump administration's policies are shaping the energy landscape for data centers. The administration's focus on energy dominance, particularly over China, is driving massive investments in AI infrastructure. However, this comes with increased reliance on fossil fuels, raising sustainability concerns.

Katherine Hamilton [15:19]:
"It's huge. I think it's the topic of every conversation in Congress and very likely in the White House and in the administration."

Jigar Shah critiques the move towards expensive natural gas solutions under Stargate, highlighting that these are among the most costly options available and may lead to higher energy prices for consumers.

Jigar Shah [18:19]:
"The natural gas plants that they're building in Louisiana are the most expensive solution they could have possibly selected... It's $100 a megawatt hour to be crystal clear."

6. Bullish and Bearish Cases for the Grid

The panel explores optimistic and pessimistic scenarios regarding the grid's ability to handle the escalating demand from data centers.

Bullish Case:
Katherine Hamilton envisions a collaborative approach where grid enhancements and innovative data center designs can coexist, improving energy efficiency and grid resilience.

Katherine Hamilton [26:07]:
"Data centers can help. There's this company up in Quebec called Q Scale... building design with energy efficiency built in."

Jigar Shah underscores the necessity of accepting the high cost of energy infrastructure to drive necessary innovations and maintain grid stability.

Jigar Shah [28:41]:
"It's $100 a megawatt hour. Stop arguing with me. Wait, it's $100 a megawatt hour."

Bearish Case:
Jigar Shah presents a scenario where despite high costs, the market might favor extensive battery storage over expensive natural gas, leading to increased reliance on fossil fuels and potential grid instability.

Jigar Shah [31:51]:
"Right now, four hours of battery storage is coming in at $800 a kilowatt. So that's way cheaper than $1,700 to $2,000 a kilowatt for the same amount of capacity."

7. The Role of Clean Firm Power: Nuclear and Geothermal

In the latter half, the episode introduces Peter Fried, former Director of Energy Strategy at Meta, who discusses the potential of nuclear and geothermal energy as clean, firm power sources to support the data center boom.

Peter Fried [35:44]:
"Data center load growth coupled with electrification across the economy presents an unprecedented demand from the sector."

He advocates for large-scale nuclear deployments, such as AP1000 reactors, and highlights the geographical constraints of geothermal energy, emphasizing innovations like dry wells to expand geothermal applicability.

Peter Fried [50:18]:
"There's a natural fit between those two things—data centers and nuclear power. Clean, firm, high uptime."

8. Regulatory and Policy Implications

The conversation addresses the regulatory hurdles in funding and implementing the necessary infrastructure upgrades. Both Katherine Hamilton and Peter Fried stress the importance of innovative financing models and fair cost allocation to ensure equitable distribution of expenses without disproportionately burdening consumers.

Katherine Hamilton [31:41]:
"Unless we have some regulatory reform and unless signals are sent for all of these different technologies to be able to participate with parity, we're going to be in a world of trouble."

Peter Fried emphasizes the need for utilities to adopt flexible and innovative regulatory frameworks to accommodate the rapid growth of data centers and the accompanying energy demands.

Peter Fried [54:34]:
"We need to look at some new and innovative financing models, likely through partnerships with outside sources of capital."

9. The Future Outlook and Political Landscape

Peter Fried shares a bullish outlook for the data center sector, projecting robust growth driven by heightened demand for AI and digital services. He remains optimistic about leveraging existing grid resources and emerging technologies to meet future energy needs.

Peter Fried [37:51]:
"I am extremely bullish. Data center as a segment separate to the AI conversation... we're facing an unprecedented level of demand from the sector."

Regarding the political environment, both Jigar Shah and Peter Fried acknowledge the potential influences of the Trump administration's policies on energy infrastructure. They note that while regulatory deregulation could provide tailwinds, ensuring sustainable and clean energy solutions remains a critical challenge.

Jigar Shah [57:48]:
"It's just too much expensive. It's $100 a megawatt hour. None of it is cheap."

Peter Fried [57:45]:
"Framing AI as a national security imperative will continue to be thematic in this administration."

10. Conclusion and Forward Look

The episode concludes with an invitation to Latitude Media’s upcoming Transition AI Conference in Boston, scheduled for June 12, 2025, focusing on the AI Energy Nexus and the interplay between AI-driven demand growth and energy infrastructure development.

Stephen Lacy [34:30]:
"Transition AI 2025 will bring together leaders in tech, finance, power markets and energy and digital infrastructure to explore how the landscape and options for powering data centers is evolving and if it can still be accomplished sustainably."

Final Thoughts:

The panelists collectively underscore the urgency of addressing the data center boom's energy demands through innovative technologies, strategic regulatory reforms, and collaborative industry efforts. They highlight the delicate balance between advancing AI infrastructure and maintaining a sustainable, reliable energy grid.

Notable Quotes:

• Jigar Shah [04:22]:
  "25,000 megawatts at 24 by 7 is highly disruptive."

• Katherine Hamilton [07:24]:
  "What do we have on the distributed side of the grid that we can bring to bear?"

• Jigar Shah [28:41]:
  "It's $100 a megawatt hour."

• Peter Fried [35:44]:
  "We are facing an unprecedented level of demand from the sector."

• Stephen Lacy [34:30]:
  "Transition AI 2025 will explore how the landscape and options for powering data centers are evolving."

For more insights and detailed discussions on the intersection of AI and energy infrastructure, tune into Latitude Media’s Open Circuit and attend the upcoming Transition AI Conference.