As the AI revolution gathers steam, questions are being increasingly raised about where the electricity required to power data centres will be raised.
According to Goldman Sachs, presently, data centres worldwide consume around 2 per cent of power, but this is projected to grow by 160 per cent by 2030. As such, global economies are said to be exploring ways to fit out their electrical grids to meet this rising demand.
In April, Blackstone’s chief executive and co-founder, Stephen Schwarzman, flagged that, in the US, a number of states are “starting to run out of electricity” as they try to keep up with the rising demand.
“The growth rate of electricity in the US was about 1 per cent a year. AI is going to add at least 2 per cent more, some people even think 3 per cent,” Schwarzman told the audience at a Melbourne investment conference.
He cautioned that if the AI boom continues to increase electricity demand by 2 per cent annually without a corresponding expansion of the electricity grid, there could be a significant shortfall of up to 20 per cent in grid capacity and this is excluding the impact of electric cars.
However, an investment strategist has posited that nuclear energy, although often subject to stigma, could play an important role in bridging this gap.
“I am not anti-oil or gas; I have no problem with oil and gas. We need fossil fuel for parts of the economy,” said Global X’s head of investment strategy, Scott Helfstein, at a media briefing in Sydney this week.
Helfstein suggested that in order to power an automated, digitised future, which he deemed “critical” given population hurdles globally, the world needs an alternative power source.
“If you haven’t noticed, the four largest economies in the world have a demographic problem whereby the working age to total population in the US, Europe, China, and Japan are all shrinking, so we need these technologies to maintain our quality of life. If we believe [that] we’re going to power the future with fossil fuel, that doesn’t make a lot of sense to me,” he said.
While he expects renewable energy sources, like wind and solar, to “continue to improve”, he said these won’t be adequate.
That’s where the case for nuclear arises, Helfstein said.
He highlighted Amazon Web Services’ (AWS) recent purchase of a 960W data centre in March, located next to a nuclear power station in Pennsylvania, in a deal valued at some $650 million.
“There’s another company in the west coast of the US that is developing small modular reactors that can power 8 to 12 facilities, take them off the grid, be efficient – that’s where we’re going,” Helfstein said.
Moreover, he shared that Virginia, otherwise known as “the data centre capital of the United States”, recently passed legislation to help advance the deployment of small modular nuclear reactors in the state.
For the Global X executive, the nuclear power future will likely see the creation of small modular reactors instead of the often feared “$20 billion power plants”.
“I do not believe the Indian Point Nuclear Reactor, which is built on the Hudson River and is 40–50 miles off from New York City, is getting turned back on any time soon. It’s actually never been turned on. The future is around this modular nuclear technology,” he told InvestorDaily.
“We have to rebuild the energy ecosystem and use all of it, so yes, while nuclear has had a stigma, already we’re starting to see around the edges that that will change. It will take time, don’t get me wrong, that’s why I mentioned the Virginia legislation, because that, to me, is a little bit of a canary in the coalmine.
“I think states are going to do this first – which by the way, in environmental policy, states have always led the federal government and been out front, and then the federal government eventually gets there – and I think this will be one more case of that.”
Evolving global attitudes
According to the World Nuclear Association, nuclear energy now provides about 10 per cent of the world’s electricity from about 440 power reactors and is the world’s second largest source of low-carbon power.
In 2022, some 13 countries derived at least one-quarter of their electricity from nuclear. Moreover, the association said France gets up to around 70 per cent of its electricity from nuclear energy while Ukraine, Slovakia, Belgium and Hungary get about half from nuclear.
Meanwhile, Japan, which used to rely on nuclear power for over a quarter of its electricity, is expected to return to that level, while almost 30 other countries are considering, planning or starting nuclear power programs, the global body added.
Reflecting on evolving global attitudes to nuclear energy, Helfstein identified two important events taking place in the global economy.
“The first is, Japan is back on their nuclear reactors, their post-Fukushima moment, and they’ve realised that for their economy, it makes a lot of sense,” he told InvestorDaily.
Over in Europe, having begun the journey to phase out nuclear energy in 2011, Germany is “going through a very difficult process”.
“What they didn’t count on was that Russia would be a resurgent threat and that they weren’t going to get cheap natural gas from Russia anymore, because they were starting wars on their doorstep. I think they’re now looking at it again because of what went on geopolitically, that opportunity for them has gone,” Helfstein said.
“They will not get enough from wind and solar, so they will likely be turning their nuclear resilience back up.
“So, if you take just that, two massive economies are moving back in that direction.”
In Australia, the Liberal Party has indicated it has an appetite for nuclear energy, arguing it can “maximise the highest yield of energy per square metre and minimise environmental damage”.
While Australia has never had a nuclear power plant, it has 33 per cent of the world’s uranium deposits and is the world’s third largest producer of it.
In his budget reply in May, the Leader of the Opposition, Peter Dutton, said Australia could meet its three energy goals – including “cheaper power, consistent power, and cleaner power” – by “following the other top 20 economies in the world which use zero-emission nuclear power”.
“On nuclear power, some 50 countries are exploring or investing in zero emission, next-generation technologies for the very first time,” he said.
“Making Australia a nuclear-powered nation is right for our country and will secure a future of cheaper, consistent, and cleaner electricity.”
