Hyperscalers’ net-zero plans hit roadblock

By 2022, datacentres are forecast to consume about 2% of global energy. By 2026, that number is predicted to jump by 4%, to about 100 terawatt hours a year, which, according to Lloyd Jones, vice-president analyst at Gartner, is equivalent to the consumption of a country the size of Japan.

He said Gartner’s energy utility clients are telling the analyst they are saying no to datacentres because they cannot guarantee 24/7, 365 days a year uninterruptible supply.

But there is plenty of interest in the use of nuclear power as an alternative to fossil fuels to provide localised power for datacentres.

Last month, Alphabet signed a deal with Kairos Power to develop the use of small modular nuclear reactors (SMRs) to complement the company’s use of renewables to power its datacentres. Michael Terrell, senior director of energy and climate at Google, said in a blog post that the deal with Kairos Power would help the hyperscaler reach its net-zero targets for emissions.

In September, Microsoft announced a 20-year agreement to buy electricity from Constellation Energy’s Three Mile Island (TMI) nuclear plant, and in March, Amazon acquired Talen Energy’s Cumulus Data Assets datacentre site, which is opposite the Susquehanna Steam Electric Station.

In a new report, Powering data centers with new nuclear capacity faces tech, regulatory challenges, ratings agency Moody’s notes that nuclear power enables electricity generating capacity free of greenhouse gas emissions and, unlike renewable energy sources such as solar or wind, nuclear reactors provide a 24/7, dispatchable source of electricity.

But the report also highlights the risk of SMRs, which are considered a new technology. As Moody’s points out, efforts to develop new nuclear generating capacity in the US have been frequently marked by construction holdups and cost overruns that have caused significant credit deterioration, severe financial distress and even utility bankruptcies. For instance, Utah Associated Municipal Power Systems and NuScale Power Corporation said in November 2023 that they had decided to terminate their plans to build an SMR because of rising development costs.

While hyperscalers are busy signing deals to build out nuclear power plants to power their datacentres, Jones said: “Take this with a pinch of salt, because we have not seen a small modular nuclear reactor being licensed and being built as a prototype, never mind receiving a licence for commercial manufacturers at industrial scale.”

Moody’s notes that the technology is still under development and is likely to face heavy regulatory scrutiny. In addition, the ratings agency noted that efforts in the US to develop new nuclear generating capacity have been frequently marked by construction holdups and cost overruns.

Given the fact that SMRs have yet to be built in a way that can make them operationally cost-effective, Jones predicts the hyperscalers will slowly roll back some of their net-zero commitments. The only thing they can do, he said, is use power from gas generators, which they will need to install on-site since the utilities firms are curbing applications for more datacentre power. “Commitments are being rolled back on quietly and we’re seeing artificial intelligence’s (AI’s) dirty secret puffing out as carbon intensity rises,” he added, referring to the vast power requirements needed to run machine learning and AI inference workloads.

However, building such microgrids onsite to generate electricity local to datacentre facilities is likely to face intense regulatory scrutiny. In what amounts to a major setup for Amazon Web Services, the US Federal Energy Regulatory Commission recently ruled against regional electricity transmission firm PJM Interconnection’s request to increase the capacity of Talen and Amazon’s interconnection service agreement to 480MW from the currently approved 300MW. 

Moody’s said the order is likely to slow the proliferation of “behind the meter” deals under which datacentres are able to purchase electricity directly from a power plant on the same site, enabling them to bypass transmission and distribution costs. “Such agreements would, in theory, provide datacentres with the quickest access to existing generation,” Moody’s said.

It’s likely there will be more regulatory barriers to overcome before microgrids and the idea of SMRs providing on-site power for datacentres gets any closer.

However, Moody’s believes that utility companies can help to de-risk the development of SMRs by working closely with the tech sector. Such partnerships would help to make SMRs commercially viable, and help both sectors’ carbon transition efforts. “The scale and financial resources of hyperscalers like Amazon, Google, Microsoft and Meta Platforms position them well to shoulder the associated financial burdens of SMR development,” Moody’s said.