In the US market alone, demand—measured by power consumption to reflect the number of servers a data center can house—is expected to reach **35 GW by 2030** up from **17 GW in 2022**, according to McKinsey analysis (Exhibit 1). The United States accounts for roughly **40 % of the global market.** ![[Pasted image 20240506164643.png]] Data centers have four main components: 1. the facility itself; 2. the industrial equipment, including the mechanical, electrical, and plumbing (MEP) gear; 3. the IT hardware; and 4. the software. Other 1. data center operations—the management of facilities and IT services, such as hosting and infrastructure as a service (IaaS). 2. Other services, such as power and connectivity, present opportunities, too. Potential investments lie across this value chain, but in four areas demand is particularly high (and not matched by supply) or innovation is especially likely to create value. > Data centers are big energy consumers—a hyperscaler’s data center can use as much power as **80,000 households do.** ### Sustainable Energy 1. **24/7 PPAs - Cheaper Longer Duration Storage** 1. To overcome the problem that solar power is generated only in the daytime, and wind power depends on the weather. One emerging solution is “24/7” PPAs, which commit themselves to **matching each hour of electricity consumption with a combination of carbon-free supplies and, quite important, stored renewable energy.** 2. These contracts come at **higher prices**, however, not least because current storage technologies are expensive. The levelized cost of electricity from a system that combines wind, solar, and lithium-ion (Li-ion) battery storage typically exceeds **$200 per megawatt-hour.** Long-duration storage solutions that deploy hydrogen and green-ammonia energy could push that below $100 per megawatt-hour, but these technologies remain at a relatively early stage of development. 2. **Zero Carbon Backup Power & Storage Solutions (Geothermal or wave energy)** 1. This is another issue, since many data centers still use diesel generators during power outages. Li-ion batteries are the most developed carbon-free backup solution but can prove expensive over long periods.  Investors with smaller data centers could aggregate their purchasing power to optimize energy procurement and storage. Some might also consider investing in renewable-energy plants that could supply consortiums of smaller players. ### Cooling & Energy Consumption Efficient cooling is therefore a crucial driver of a data center’s profitability. Cooling accounts for some **40% of a data centers energy consumption**. The cost of downtime from overheating can be high. Higher computing power and innovative chip designs are also putting more demand on cooling systems by raising the power density: the energy consumption of the equipment stored in racks. Their average power densities have more than doubled over the past six to seven years and continue to rise. The density of a single rack can be as high as **20 to 30 kilowatts** in specific high-performance environments. Space constraints—especially for smaller edge-computing data centers in urban areas—also raise demand for systems with higher power densities. Data centers need to use energy more efficiently as well. **Power usage effectiveness (PUE)**—the amount of power the computing equipment in a data center uses relative to its total energy consumption—fell considerably from 2007 levels, but progress has flattened over the past decade. Even the hyperscalers that deploy advanced cooling designs and technologies struggle to improve significantly: the reported PUE of Google’s data centers has fallen only incrementally during the past seven to eight years, for example ![[Pasted image 20240506170014.png]] [[Cooling and Energy Efficiency Technologies]] ## Constructing prefab and modular data centers Rising demand for new data centers is also creating potential investment opportunities in the fragmented prefabrication and modular (PFM) sector. In 2022 hyperscalers alone allocated some $9 billion to build more capacity—a sum expected to grow by more than 4% a year until 2030 . ![[Pasted image 20240506175204.png]] There are four types of prefabricated or modularized solutions: - the prefabrication of structural and architectural components, such as concrete beams, walls, slabs, facades, and precast underground culverts - skid-mounted MEP equipment: metal racks for mounting and connecting mechanical, IT, power, and cooling components and systems - enclosed MEP modules, which mount and connect the same kind of equipment, but in a cabinet - all-in-one data centers: turnkey data centers, which are feasible only for smaller facilities of 1.0 to 1.5 MW. ## Edge computing Although enterprises are rapidly shifting vast amounts of their work to the public cloud, they are also growing more knowledgeable about **what _not_ to store there**. Applications (for instance, autonomous driving) that require real-time insights at very low latencies might be better conducted close to the data’s source. The cost of transferring large volumes of data to and from the public cloud can also favor edge computing. So do data privacy and residency regulations that require certain types of data to be stored near their point of origin. The worldwide spending of enterprises and service providers on hardware, software, and services for edge solutions was projected to reach $176 billion in 2022 (an increase of 14.8 percent from 2021) and $274 billion in 2025.14 Two types of investment opportunities related to data centers stand out: 1. Real Estate: Demand for edge computing must be met from smaller data centers, often located in urban areas close to customers, rather than huge facilities in far-off locales. 2. Technology. The components of the edge-computing tech stack (the hardware, connectivity, platforms, and software) are not new. The challenge is how to deploy and architect them at the edge—how artificial-intelligence capabilities can be brought there, for example, or how to deploy and manage platforms. In March 2022, for instance, T-Mobile invested $40 million in [Spectro Cloud](https://www.spectrocloud.com/) to promote innovation in Kubernetes management.