Energy transition and digital infrastructure – How data centres create opportunity for both sectors to grow
Data centres are an increasingly attractive asset class for both equity and debt to employ capital. This is driven by demand for cloud computing, AI, hyper scale activity, data storage and processing power. They are a capital intensive asset with diversified participants of varying credit quality and different development and revenue models.
The result is a varied capital mix often for the one asset. The financing frameworks may be project financing akin to traditional infrastructure financing, corporate or leveraged debt particularly for asset pools of strong developers, non recourse financing against cross collateralised multiple data centres both operational and greenfield, asset backed securitisation and private capital. Lenders and investors are increasingly assessing bankability of data centres on access to supply of renewable power and clean energy storage.
This is because the power demand of data centres is increasing with forecast annual compound growth of at least 5 per cent for the next 10 years. Most of that power needs to be a continuous supply of energy to operate the data centres. Increases in power generation will be needed and are likely to be supplied (or required to be for bankability) by the renewables sector.
The intersection between energy transition and digital infrastructure is creating rapid changes for both sectors. One change is co-location of data centres and generation assets. The benefit to energy developers is support for their financing from the revenue from dedicated supply. It may also mean energy pricing terms which are more certain in the longer term for data centre owners.
For data centre owners that dedicated supply reduces their operational risk. It also assists them to meet ESG demands for sustainability by becoming “green”.
The result is that data centre demand is driving green energy demand. This feeds into acceleration to market and earlier commercialisation for innovative new green energy science and decarbonised energy supply. The private capital markets are seeing this as a new opportunity.
The bankability criteria for data centres is driving co-location of data centres and new greenfields development of green power projects, increasingly at scale. Interconnection is driving growth and synergies.
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