Schroder Investment: Renewable energy drives the AI revolution and requires more investment.

Schroders global investment partner Paul O'Donnell of Greencoat wrote that artificial intelligence (AI) technology relies on massive data consumption, further driving electricity demand. However, more investment will be needed in the future. According to McKinsey's latest data, by 2030, data center capacity demand will increase to about 35GW, far higher than the current 10GW demand, requiring $250-300 billion in new data center infrastructure investment to meet this growth. Schroders global investment pointed out that the revolutionary development of artificial intelligence (AI) technology has become a major super trend in the global economy, reshaping almost all industries. However, this relies on massive data consumption, further driving electricity demand. According to data, from 2012 to 2023, data center electricity demand has rapidly increased at a compound annual growth rate of 14%, while overall electricity demand during the same period only recorded a growth of 2.5%. The International Energy Agency's report shows that by 2026, the share of electricity demand from data centers will double from the 2022 level, equivalent to the entire electricity demand of Germany. Currently, there are over 8,000 data centers globally, mainly concentrated in the United States and Europe, with this distribution continuously expanding. According to a report by Allen & Overy, in just the first five months of 2024, investments in the global data center sector have reached $22 billion, further accelerating from the $36 billion investment scale in 2023. Schroders global investment stated that infrastructure assets related to energy production provide an attractive and relatively low-risk investment opportunity to capture the growth of data centers. Particularly, renewable energy assets, as sustainable sources of power, can meet the increasing demand for electricity, benefiting from the substantial growth of the data center industry. Major technology companies and governments globally have set ambitious carbon reduction and net zero emission targets to address climate change. To achieve these goals, significant investments must be made to increase the generating capacity of renewable energy. Just the electricity demand from data centers may need an additional 100GW of wind and CECEP Solar Energy projects by 2035, requiring capital expenditure of up to 115 billion euros. This issue has already emerged in some major European data center markets (such as Amsterdam and Dublin) where limitations on new data center developments have been imposed due to grid capacity and sustainability issues. Commitments to provide additional renewable energy to meet demand are often the key to overcoming these limitations. In conclusion, the renewable energy industry is at the intersection of two major global super trends: the AI revolution and global decarbonization processes. Regions like the UK, Ireland, and Spain have made significant progress in developing renewable energy networks and have a strong advantage in meeting the growing demand for data and energy. Schroders global investment stated that as data center operators' electricity demand continues to rise, it has also driven widespread use of contract mechanisms, opening up new development potential. One trend that has attracted attention is enterprises directly procuring electricity from renewable energy generators through bilateral agreements. These agreements, known as power purchase agreements (PPAs), are legal contracts that connect power generators with end users. They effectively meet the growing demand for renewable electricity from enterprises and provide renewable energy operators with stable and long-term sources of revenue. In recent years, the size of the European renewable energy PPA market has steadily grown, with cumulative contracted capacity reaching 46GW since 2013. As demand for renewable energy increases and traditional energy prices fluctuate, PPAs have become an important tool for asset owners to secure attractive prices. The market demand for investment and development to expand data center capacity is continuously growing. At the same time, the demand for renewable energy supply to sustainably meet the rapidly increasing energy needs has also increased, making it an indispensable element in driving the low-carbon future of energy transition technology investment. Major global technology companies and utility suppliers have already made large-scale investments in this area and are expected to benefit from these rapidly evolving trends. However, the market still needs more investment, especially from investors with a long-term growth vision. Schroders global firmly believes that there are significant synergies between traditional real estate and core renewable energy infrastructure investments, which will further highly attractive investment opportunities, helping to unlock long-term value.