ESG Series: AI, datacentres and sustainability

To read the full report, please download the PDF above.

Executive summary│AI, datacentres and sustainability

Catalysing generational power demand growth

 

 

 

Global perspectives on AI, datacentres and sustainability

 

 

 

 

 

 

 

EMEA perspectives on AI, datacentres and sustainability

 

• We build on our earlier work on artificial intelligence's (AI) influence in scaling ESG's maturation (see here), to examine the impact of AI-led datacentres' on power demand growth. Given the depth, breadth and critical importance of this theme to the sustainability ecosystem, we compartmentalise this thought leadership report into two segments – (i) global perspectives; and (ii) EMEA perspectives.

Global perspectives

• Propelled by AI, broader demand and a deceleration in the pace of energy efficiency gains, global datacentre power demand is primed to leapfrog in the medium-term. We extrapolate IEA data and parameterise that the quantum of datacentre power demand growth will be in the magnitude of 120-150% by the end of this decade. This is set to drive a cosmic acceleration in a level of electricity growth across the global economy that is unrivalled in history.

• AI-led power demand growth and rising datacentre emissions add to broader sustainable investing uncertainties this year – interest rates, elections and the scale of the investment quantum needed towards sustainability. We envisage a balanced approach for sustainable investors – from the one hand, recognising the array of tailwinds from AI towards advancing UN Sustainable Development Goals (SDGs), and the other, addressing the challenge arising from the anticipated increase in datacentre carbon emissions over the coming decade/

EMEA perspectives

• Turning to Europe, power demand has been hit by three major exogenous shocks since the 2008-09 Great Financial Crisis – COVID, the energy crisis and the de-industrialisation of the European economy. Consequently, electricity consumption has cumulatively declined by ~10%, according to data from Eurostat. We hold conviction that this trend is on the cusp of a significant inflection.

• Extrapolating IEA data, our parameterisation suggests that the rapid expansion in AI-driven datacentres – alongside the fortification of the continent’s electrification process on the back of the REPowerEU plan (see here) – could bolster Europe’s power demand by ~30-40% over the next decade.

• Benefactors of strong power demand from datacentres will be concentrated in two dimensions, in our view. First, jurisdictions with cheap, abundant baseload power (nuclear, hydro, wind and solar), such as France, Spain and the Nordics. Second, jurisdictions with large financial services and tech hubs, both willing as well as capable to offer favourable incentives to attract datacentres, such as the UK, Germany and Ireland.

• From an industry lens, elevated operational and financial gearing signals that a surge of the top line (gross revenues) could have marked effects on the bottom line (net earnings). This trend is set to be augmented by the secular, organic growth of power grids and renewables – essential infrastructural enablers proliferating datacentres and the electrification journey. We believe electrification centric entities – E.ON, Enel, Iberdrola, Orsted and SSE – are well-positioned to grow profitability from power grids and renewables, thanks to their attractive risk/reward proposition.