Driven by AI and electrification, power demand is set to rise, but there are big questions in the rapidly evolving sector. How can we unleash more private capital to power the digital revolution and do so quickly? ING Americas’ Head of Energy Wafaa Ermilate explores.
After years of muted demand growth, the power industry today is facing exciting prospects of sudden and steep load projections driven by AI as well as increased electrification from transport and industrial sectors. US energy demand for data centers alone may potentially quadruple from 147 TWh in 2023 to more than 600 TWh by 2030. However there is also significant uncertainty in the trajectory; timing and monetization pathways for AI applications are yet to be to demonstrated, and leaps in computer chip technology could drastically reduce the power AI requires. Reconciling this uncertainty with the long-lead nature of investments in energy infrastructure, one which has traditionally been rooted in certainty of forecasts, will be a key challenge for stakeholders across the board.
What is the value of doing “more with less”? It turns out, possibly a lot. A potential way to meet near-term demand and mitigate the risk of longer-term uncertainty is investing in flexible solutions that enhance the existing grid. Mobilizing storage assets, implementing demand-response programs, deploying smart building solutions, and tying everything together with coordinating software, could turn new large loads requests to utilities into opportunities to make an ageing grid more resilient.
Quantifying the value proposition of flexibility over the long term has, however, proven more elusive to date. The number of counterparties, the short-term nature of the associated revenue streams, and differing reward mechanism in each market, to name a few factors, have made it difficult to scale these solutions. Cracking the code to match the value of flexibility with bankable cash flows may hold the key to unleash larger pools of capital and power the digital revolution - while the actual AI-driven demand trajectory and the necessary investments in baseload power flesh out.
Past large-scale deployment of renewables may offer valuable lessons on how to address the challenges of scaling up. Consider how corporate buyers partnered with the energy sector to standardise power purchase agreements in the context of renewable energy globally, derisking investments substantially and eventually, enabling vast pools of private capital to flow and fund the large scale deployment of wind, solar and storage. Standardisation and other efficiencies in the renewable energy industry have moved the needle on an equally difficult challenge: decarbonise electricity. Confronted with the immediate need for vast amounts of affordable, reliable and clean power, the data center and energy industry will need to sharpen their pencils on innovative solutions. In the long term, we can indeed no more address data centers' forthcoming energy demands with limitless investment than we can with endless carbon emissions.
Genuine partnerships will help foster the sharing of knowledge and experiences together to find and develop solutions. At ING, for example, our partnership with EPRI's DCFlex Initiative aims to create a blueprint to demonstrate how data centers can support and stabilize the electric grid while improving interconnection and efficiency. From financial institutions like ING to energy providers, data center operators, investors, and other industry organizations, we are all part of a broad community of entities in pursuit of addressing the energy needs of the digital revolution. None of us has the roadmap to the best path forward, but when we build true partnerships and share information, we can chart it together.