Growing data centre energy demand could delay fossil fuel phase-out

The rise of AI is expected to drive a large increase in data centre electricity demand, which in turn could help extend the life of coal and other fossil-based power plants, according to BloombergNEF.

In its latest New Energy Outlook, BNEF warns that an additional 362 gigawatts of power plant capacity (roughly three times the amount of wind capacity installed last year) will be required by 2035 to meet data centre energy demand. 

And despite the fact that renewables (47%) and energy storage (9%) would make up more than half of the needed capacity, BNEF finds that the incremental power generated to meet data centre demand would largely come from fossil fuels.

“In aggregate, 64% of incremental generation to meet data centre demand comes from fossil fuels, and 36% from renewables. Our modelling supports the strong case for renewables and storage build to power data centres but also highlights the possibility that added data-centre demand could help extend the life of existing coal and gas plants. Indeed, most of the incremental coal capacity and one-third of the gas capacity associated with data-centre demand is from existing plants that avoid or delay retirement,” BNEF authors write in the report.

AI-driven power demand will hit the US and growing economies the most

By 2050, the research firm expects global data centre power demand to reach 3,700TWh – equivalent to around 90% of the United States entire electricity consumption in 2023 – or 8.5% of the world’s power needs.

The US is the single largest market for this trend, with data centre electricity demand expected to reach 8.6% of the country’s total needs by 2035, outpacing demand from electric vehicles.

In addition, “growing economies in Asia, the Middle East and Africa account for a large portion of the increase”, according to David Hostert, global head of economics and modelling at BNEF, and lead author of the report. 

“It is here that the greatest opportunities for power infrastructure investment will lie. We expect data-center power demand in these markets to grow by six to 16 times by 2035 and reach 260 terawatt-hours,” he added.

Renewable growth means power emissions may have already peaked

Despite this potential delay in the energy transition, BNEF researchers believe that GHG emissions from the world’s power sector may have peaked in 2024. Power generation from renewable sources is set to jump by 84% in the next five years, and double again by 2050.

This means that by mid-century renewables could cover 67% of the world’s electricity demand – which is itself expected to be 75% higher than today due to economic development, electric vehicles, cooling needs and data centre demand. In 2024, renewables made up just a third of global power consumption.

Thanks to this acceleration the share of coal, gas and oil in the power system is set to drop to 25% in 2050, from 58% in 2024. However, natural gas demand is still expected to increase by mid-century.

With the adoption of clean power, as well as road transport electrification, BNEF expects global emissions to drop by 22% by 2050 – in line with a 2.6ºC temperature increase by the end of the century, notably to support data centre growth.

Hydrogen and carbon capture 'struggle to make an impact'

Interestingly, BNEF doesn’t see hydrogen, carbon capture and storage (CCS), clean fuels and low-carbon industrial processes as likely to make a significant impact in the energy transition before 2050.

“Major investment and rapid deployment of clean energy technologies across markets is essential to materialising real change,” said Matthias Kimmel, head of energy economics at BNEF and co-author of the report. “The total investment potential for renewables in our ETS is almost US$6 trillion from 2025 to 2035, and US$10.55 trillion from 2025 to 2050. Policy makers and investors should continue to take advantage of readily available solutions like renewables, storage and electric vehicles, and capitalise on emerging opportunities surrounding energy supply and security.”