Powering data centres – from atoms to bytes

The challenge

In the US, annual investment in data centre construction has doubled in the past two years alone. We have also seen recent advances in generative AI, with ChatGPT searches thought to consume around six to 10 times the amount of power as a traditional Google search. As a result, there has been a heightened focus on the potential future power demands of data centres. Goldman Sachs, for example, has estimated that in 2030, data centres will make up 8% of power demand in the US. 

Many similar forecasts have focussed on US and European data centre power demands. These figures potentially underestimate the future global power requirements of data centres, particularly due to a lack of certainty or visibility on power demands in certain regions such as China. In addition, forecasts will vary globally, with some areas seeing a much higher proportion of power demand from data centres. For example, the International Energy Agency (IEA) estimates that almost one-third of electricity demand in Ireland could come from data centres by 2026. 

All this is to say that, even by conservative estimates, the future demand for power from data centres is likely to be huge. When we combine this with the increased demand from the broader electrification of industry and society, questions are being raised as to how data centres will meet their future power needs, whilst also meeting the pressure to decarbonise their footprint to meet net zero targets.

Meeting power demand

Over recent years, hyperscalers have partnered with power generators and suppliers to secure power from renewable sources. Power purchase agreements (PPAs) have been the leading strategy for hyperscalers to fulfil their renewable energy commitments with Amazon, for example, acquiring more PPAs globally than any other company in the last year. 

While renewables have the potential to meet a significant proportion of the increased power needs from data centres (particularly when combined with storage), their intermittent nature means that they cannot produce power consistently enough to be the only energy source for data centres, which have a 24/7 demand. Baseload power generation is therefore essential. Whilst gas fired plants with carbon capture could provide a low carbon baseload solution, the geographic constraints of carbon storage means that carbon capture gas plants are unlikely to be the answer for data centres globally. 

Nuclear is therefore attracting greater attention as a potential solution for the new power demands from AI and data centres. 

Nuclear advantages

Nuclear power offers significant benefits which are ideal for data centres: 

• They can run baseload, providing a reliable source of power, 24/7 – this is essential for data centres, which have round-the-clock power needs;
• They are incredibly energy dense compared to other power sources – this is due to the capacity factor of nuclear power plants. As an example, a 1GW nuclear reactor would need to be replaced by three to four renewable plants (each of 1GW size) to generate the same amount of electricity onto the grid. The energy density of nuclear therefore makes it ideal for meeting the huge power needs of data centres; and
• They are low carbon – whilst nuclear does create nuclear waste which requires careful storage management, nuclear energy has almost zero carbon dioxide emissions, meaning nuclear power can satisfy the pressures faced by data centres to find low carbon sources of power.

Nuclear power, however, is not short of challenges. High capital costs for large scale nuclear power projects, with recent projects beset by cost overruns and delays, has meant that nuclear has traditionally faced difficulties in obtaining financing for construction. Uncertainty as to political and regulatory support for nuclear, as well as public perception issues, has meant that nuclear power projects may not be seen as the obvious solution for data centre power needs, despite the benefits it offers.

The landscape is, however, shifting. The urgency of achieving net zero goals is pushing nuclear energy to the fore. Recent geopolitical shifts have renewed the focus on energy security, with countries such as Germany, who have been opposed to nuclear as part of their energy mix, now reconsidering their appetite. We are also seeing greater political and regulatory support for nuclear projects, such as the 2024 European Market Reform (which would allow contracts for difference to be used to support nuclear projects in the EU) and the Regulated Asset Base approach, which has been developed for projects like Sizewell C in the UK. Investors and finance providers globally are also now showing a greater interest in funding nuclear projects. Last year, for example, 14 of the world’s biggest banks and financial institutions pledged to support the COP28 goal to triple global nuclear capacity by 2050. 

Technology companies therefore have an opportunity to capitalise on the increasing political and regulatory support for nuclear, as well as the increasing willingness for investors to fund nuclear power projects. 

The role of technology companies in nuclear

Data centres are now looking at using nuclear power in several different ways:

• Co-locating data centres with existing operational nuclear power stations: last year, Amazon acquired a data centre site which is connected to a nuclear power station in Pennsylvania, US. As Amazon develops the data centre, the nuclear power plant will supply carbon-free power through a PPA with Amazon. 
• Re-starting operations of existing plant: last year, Microsoft signed a 20-year PPA with Constellation Energy, which will pave the way for a restart of the Three Mile Island Unit 1, which previously operated between 1974 to 2019.
• Developing new nuclear reactors: a number of technology companies are investing in the development of new nuclear technology. For example, Amazon and X-Energy last year announced a collaboration to deploy 5GWs of small modular reactors (SMRs); Google and Kairos Power announced a collaboration to deploy 500MW of SMRs; and Microsoft has said that it intends to integrate advanced nuclear technology into powering its data centres, announcing a search for a Principal Program Manager of Nuclear Technology, who would be responsible for implementing a global SMR and microreactor energy strategy.

Small Modular Reactors

Advanced nuclear technology, such as SMRs, are at an earlier stage of maturity compared with large-scale nuclear technology (no SMRs are operational outside China and Russia). Therefore, while SMRs may not provide an immediate solution for new near-term planned data centres, the anticipated AI boom is fuelling investor interest and allowing SMR developers to raise significant amounts of new capital to fund their development pathways.

Governments are also looking to support SMR development as they look for additional ways to meet future energy demands (as well as boosting domestic jobs and supply chains and fostering the AI/tech industry). The UK, for example, is currently running a competition to procure SMR technology for the development of new nuclear projects, as part of its ambition for up to a quarter of all UK electricity to come from nuclear power by 2050. The UK government has also recently announced its intention to relax planning laws to allow developers more flexibility on where they can locate nuclear sites, with the aim of facilitating co-location with energy intensive industrial sites such as AI data centres. 

SMRs have the potential to provide further benefits for data centres: 

• While SMRs currently have a high levelised cost of energy, Wood Mackenzie has estimated that, if SMR costs fall to about U$120/MWh by 2030, they could be competitive with gigawatt-scale nuclear, as well as with gas and coal plants. 
• The smaller size and overall cost of SMRs, means financing should be easier to obtain than has historically been the case for large-scale nuclear, owing to the lower overall quantum of financing needed and the shorter construction periods. 
• The modular nature of SMRs means that parts can be factory-made and shipped to a variety of site locations e.g. data centre sites. 
• SMRs are also flexible, as they can be scaled up or down to meet energy demands – this can make SMRs ideal for increasing power supply as data centre sites are expanded. 

Innovative financing approaches for data centres and nuclear

The involvement of technology companies in the nuclear space means that traditional methods of financing nuclear projects may also be disrupted. Technology companies may instead choose to provide debt or equity financing to nuclear developers at a corporate level, to facilitate the development of new reactors (such as Amazon’s collaboration with X-Energy).

Alternatively, a modified “Mankala” model, could play a significant role in developing nuclear technology. The Mankala model has been used for the financing of nuclear power plants in Finland, bringing together consortia of corporations to purchase, finance, and share the output of jointly owned energy-generation facilities. A similar approach could be taken with technology companies investing in the development of new nuclear reactors while being entitled to a proportionate share of the power through PPAs. This allows capital to be pooled from a variety of sources with the nuclear project receiving contracted revenues under PPAs from creditworthy offtakers.

The potential for nuclear to provide a viable solution for powering data centres is clear, with investments from technology companies in nuclear projects and developers increasing rapidly over the last year alone. We are likely to see further developments over the coming years, with technology companies challenging some of the traditional ways of developing and financing nuclear projects. 

Linklaters has advised on nuclear projects at every stage of development; including joint ventures, equity investments, financing, development of regulation, consenting and licensing processes, procurement of the technology, construction, operation and fuel supply, and reprocessing waste and decommissioning. Visit our Nuclear: A Net Zero System webpage for more details. Please also visit our Digital infrastructure webpage to explore our wider data centre capabilities.