The growth of AI and cloud technology has enormous implications for a range of industries, from health care to cybersecurity to financial services and many others. Less obvious, perhaps, is the impact it will have on infrastructure, a result of the increased demand for electricity needed to power data centers.

Artificial intelligence is the term used to describe technology that enables computers to essentially learn and adapt as they attempt to accomplish a range of tasks. AI encompasses a variety of usages, but one thing they all have in common is they use vast amounts of data. Indeed, for a standard AI model/algorithim, it takes more computations to run the model and produce an output than there are grains of sand on earth. The result is a need for large data centers requiring tremendous amounts of power. That’s why the adoption of generative AI is driving a step change in demand for electricity: data center power consumption is expected to grow significantly over the next several years (Figure 1).

However, these data centers consume so much power that just one of them drawing power from today’s electrical grid can have a destabilizing effect. As a result, to get a permit to build these data centers, you need to have a power solution in place. In short, the ability to procure power is essential to the large tech companies’ ability to grow their operations.

We believe owners, developers and operators of renewable power assets are set to benefit from this increased demand for electricity. These large tech companies were already some of the biggest purchasers of renewable power; now, they are likely to increase their demand. These companies are choosing renewable power for two key reasons:

• Net-zero goals: Tech companies often have a 100% target for green power, given their net-zero ambitions. The need for more data centers to meet the demand for more electricity is expected to lead to tech companies to pursue renewable energy options.

• Price: While the commitment to green power is important, so is price, which has made renewable energy attractive simply from an economic standpoint. The price of renewable power has significantly declined in recent years, and it is now often the cheapest form of electricity in most major markets around the world (Figure 2).

As a result, tech companies are becoming more agreeable on price and other terms in their purchase agreements to secure power. Given their significant presence in the marketplace, this is shifting the dynamics of the industry to the benefit of renewable power producers.

The corporate demand for renewable power is outpacing available supply—creating significant opportunities for owners and operators of renewable power assets that can bring additional capacity online in the near term. We believe that the operators who have access to capital and possess the technical expertise—as well as those that have already been investing in these projects (given the immediate need)—will be the ones that reap the benefits.

Read the Alts Quarterly, where we discuss the infrastructure outlook and themes affecting other key alternative asset classes.