Ares Infrastructure Opportunities - The Convergence of Digital Infrastructure and the Energy Transition

Executive Summary

The acceleration and convergence of two global megatrends - digitization and decarbonization – are driving over $2 trillion in estimated U.S. energy transition infrastructure and data center investment through 2030.^1,2 More specifically, we see that the rapid growth in global data creation, from cloud storage to artificial intelligence (“A.I.”) applications, requires new investment into digital infrastructure across data centers, fiber networks, and cell towers. Naturally, this growth is causing a corresponding rise in the demand for power. U.S. data center electricity consumption is expected to reach ~380 TWh by 2027, equivalent to 8.5% of total U.S. electricity consumption and larger than the total electricity consumption of all but 10 countries as of 2021.^3,4

The robust growth in computing needs and commensurate power requirements have had a profound impact on the power grid, creating load growth while also creating enduring demand for renewable energy. The declining price of renewable energy, supportive policies, and a preference for lower carbon sources of energy have all propelled renewables growth historically. Preference, which is manifested in the form of corporate sustainability ambitions, now appears poised to be a dominant driver of continued renewables expansion. This paper explores the challenges and opportunities that lie ahead at the intersection of digital infrastructure and the energy transition. 

Key Takeaways 

1. The Rise of Data: Increased data consumption and processing are causing a reversal of a more than 10-year trend of stagnant U.S. load growth, resulting in a massive boon to renewables deployment.   
   U.S. utilities and Regional Transmission Organizations are now forecasting peak electricity demand growth to surge. In some cases, current peak demand growth over the next five years is forecasted at 4.7%, nearly double vs. forecasts of 2.6% just a year prior.⁷ This spike in power demand is primarily due to digital infrastructure consumption needs and should support continued investment into new power generation, predominantly in renewables. 
2. The Convergence: Technology companies that have ambitious climate targets should continue to be a key driver of renewable energy procurement.   
   Renewables generation stands to benefit greatly from the convergence of digital infrastructure and energy transition. In the U.S., data-center-related energy consumption procured through power purchase agreements (“PPAs”) is expected to increase over 150% from 2023 to 2027.⁸ Powering this growth in energy consumption will require an estimated 40-60 GWs of additional renewables generation.⁹ 
3. Bridging the Gap: Power access constraints will drive demand for on-site power solutions, paving the way for more substantial sustainable solutions.   
   Data processing growth has been concentrated in select cities, resulting in significant transmission bottlenecks and causing utilities to struggle to offer timely access to reliable power that new data centers require. Bridging solutions, which allow data centers to operate before grid connection is ready, may see increasing adoption. These include the potential of co-locating renewable energy and battery storage with data centers to simultaneously speed access to power and meet the net-zero commitments of large technology companies. 

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1 Goldman Sachs. “The US is poised for an energy revolution” (April 2023) 
2 Synergy Research Group, 2023 
3 IDC 2023 Datacenter Deployment and Spend Forecast 
4 EIA. World Electricity Consumption. (March 2024) 
5 EIA, “Annual Energy Outlook 2023”, Table 5, March 2023 
6 IDC 2023 Datacenter Deployment and Spend Forecast 
7 Grid Strategies, “The Era of Flat Power Demand is Over” (December 2023) 
8 Proprietary AIO research, based on a survey of 26 industry participants 
9 AIO estimate assuming net capacity factor range of 24-35% for wind and solar assets