Daily Update: Challenges and Opportunities for Datacenters
Today is Tuesday, December 17, 2024, and here’s your curated selection of essential intelligence on financial markets and the global economy from S&P Global. Subscribe to be notified of each new Daily Update.
With the holiday season upon us, one might expect a rise in AI-enabled search queries about gift ideas, decoration suggestions and cooking tips. All those queries will be making a contribution to datacenter demand since every online save, search and AI query generally requires a server and data storage. And let's not forget social media, entertainment, banking and business applications. As these services expand, the demand for the hardware that enables them surges, leading to commensurate growth in power-hungry datacenters, according to S&P Global Ratings.
How hungry? Like needing to eat a full turkey dinner with all the trimmings for breakfast, lunch and dinner every day. S&P Global Ratings expects incremental US power demand from datacenters to be 150-250 TWh between 2024 and 2030. Between 25% and 40% of that power is used for cooling to maintain optimal performance, with this figure dependent on climate and technology.
That could have a positive effect on regulated utilities, which have spent two decades being squeezed by successful efforts to improve energy efficiency. Resultant flat electricity sales led to the industry focusing on efficient cost management and recovery, S&P Global Ratings said. Demand growth will drive electricity sales and enable the industry to spread its fixed costs over a wider base of ratepayers. But meeting new demand will require increased capital expenditure and effective management to prevent significant increases to existing customer bills.
Datacenter growth has knock-on effects for the US real estate sector too. Datacenters require large plots of land with access to power and water. Some datacenters are wholly leased to hyperscalers — cloud computing giants such as Amazon, Google, Microsoft and Meta — over long periods. Others are shared spaces and therefore have slightly higher risk profiles for owners.
Many hyperscalers have ambitious decarbonization targets by 2030. Datacenters account for half of the clean energy in US power purchase agreements, which are long-term contracts between companies and utilities. But the rollout of renewable power is not keeping pace with demand. S&P Global Ratings estimates that US datacenter power demand will increase at 12% per year until the end of 2030. Even with the associated growth in carbon emissions, the total will be small compared with some industries. While emissions are not yet a risk to the reputation and creditworthiness of companies, there could be problems down the line. Ultimately, every scrap of electricity going to a datacenter is being taken out of the mouths of other industries and residential customers. Of course, there’s a chance that datacenters' energy appetite can be controlled if they become more efficient.
Because datacenters are so power-hungry, some will have to be less fussy about the kind of energy they consume, leading to two power sources with slightly less green credentials being back on the menu. The first is nuclear, especially in the form of small modular reactors, a technology that has not yet been proven at scale and could be difficult for communities to stomach. The second is natural gas, renewable or otherwise.
It is no accident that the areas of the US with the highest density of datacenters are near natural gas fields. Northern Virginia is next to the Marcellus Shale region, while the Dallas-Fort Worth area in Texas is near the Permian Basin. Natural gas offers the advantage of lower costs, existing and cheaper infrastructure, and reliable round-the-clock baseload power. S&P Global Ratings estimates that US datacenters' increasing energy demands will lead to additional gas demand of between 3 Bcf/d and 6 Bcf/d by 2030, from a starting point of almost none today. This could benefit merchant generators, or nonregulated utilities, and midstream gas companies, especially those involved in transportation.
As well as reliable energy, other factors influencing datacenter siting are fiber access, water for cooling, climate and workforce availability. But grid connectivity and transmission access are the chief drivers. The rapid growth in datacenter-driven demand has revealed the historic lack of investment in transmission. Although 2022’s Inflation Reduction Act partly addressed this, large-scale infrastructure takes time to roll out, and that available time has been compressed. “Disruption is a bit like that — you don't see it until it's staring you in the face,” S&P Global Ratings said. Rather like a turkey, then.
Today is Tuesday, December 17, 2024, and here is today’s essential intelligence.
Written by Tom Cobbe.
Sustainability
Navigating the Green Transition: Financing Trends Evolve for Chinese Power Companies
The acceleration of industrial restructuring in China is increasingly evident as the country transitions into a "new normal" — from a growth model centered on scale and speed to one prioritizing quality and efficiency for an improved economic system — while moving toward net zero. Emerging industries such as artificial intelligence-related sectors, electric vehicles and solar power components manufacturing have witnessed robust growth in power needs. These factors, combined with a rising frequency of extreme weather events, contribute to the country's new peak load record each year.
—Read the article from S&P Global Commodity Insights
Economy
Central and Eastern Europe Sovereign Rating Outlook 2025: Now More Complicated
S&P Global Ratings projects that GDP growth in CEE will average 2.0% this year and accelerate to 2.8% in 2025 thanks to strengthening consumer spending and investment, spurred by EU fund inflows. These inflows will help overfund CEE economies' modest current account deficits and maintain their generally strong external stock positions. S&P Global Ratings expects disinflation and monetary easing to continue. Despite global and regional headwinds and elevated fiscal risks, its CEE sovereign ratings are expected to remain broadly stable.
—Read the article from S&P Global Ratings
Capital Markets
Private Equity, Venture Capital Funding Rounds Down 29% in November
Recommended by LinkedIn
Global private equity-backed funding activity slowed in November, S&P Global Market Intelligence data shows. Global venture capital deal count declined 29.2% year over year to 1,018. Deal value totaled $20.55 billion, up 29.1% from $15.92 billion a year ago.
—Read the article from S&P Global Market Intelligence
Global Trade
Ukraine Estimates 238 ‘Shadow’ Tankers Shipping Sanctioned Russian, Iranian Oil
Ukraine has identified 238 "shadow" tankers transporting sanctioned oil from Russia and Iran to boost revenue, calling on governments to clamp down on their operations to reduce safety and environmental risks. In a statement on Dec. 12, the Defense Intelligence of Ukraine said the ships with more than 100 million dwt — accounting for 17% of the world's oil tanker fleet — help the "aggressor" states generate "billion-dollar revenue" and threaten "global environmental security."
—Read the article from S&P Global Commodity Insights
Energy & Commodities
Oil Market Dynamics in 2024 and the Path to 2025
It's been quite the year for oil markets. In this special episode of the podcast, Joel Hanley, Jeff Mower, Sambit Mohanty and Richard Swann look back at 2024 and try to untangle the biggest themes, including slowing demand growth, the incoming Trump administration and the formidable challenge for OPEC+ in its quest for market control. The panel also discusses trade flows, new crude supply and how changes in China's economic fortunes could have a major impact going into 2025.
—Listen and subscribe to the podcast from S&P Global Commodity Insights
Technology & Innovation
Semiconductor Recovery Expands Beyond AI to Automotive, PCs
For the first time in several quarters, the broader semiconductor sector is showing early signs of recovery in terms of clearing inventory. The gap between chip companies' revenue and inventories — a sign the companies are selling more chips than they are holding onto — reached its highest point in the third quarter since 2021, when there was a widespread shortage of semiconductors of all types. In reaction to outsize demand in 2021 and 2022, semiconductor companies built up inventories but found themselves with excess supply as demand collapsed.
—Read the article from S&P Global Market Intelligence
Events & Webinars
Webinar: Navigating the New NAIC Bond Definition Framework (Jan. 14, 2025)
The NAIC's Principles Based Bond Definition (PBBD) changes, set to take effect on January 1, 2025, represent the most significant changes to insurer investment schedules in decades. Bonds will now be categorized into two major groups: asset-backed securities and issuer credit obligations. Certain securities may not qualify as "asset-backed" under the new guidelines, resulting in higher capital charges related to Schedule BA reporting. Both insurers and the asset managers that service the industry are actively working to understand and adapt to these changes.
—Register for the webinar from S&P Global Market Intelligence
Realtor Associate @ Next Trend Realty LLC | HAR REALTOR, IRS Tax Preparer
5dThanks for the updates on, The S&P Global Daily 😀 🙌 👍 🙏 👏.