March 4, 2025 Navigating Energy Needs for Increased AI Demand

As utilities struggle to meet the rising energy demand of the data center industry, AI developers look to non-traditional energy sources for reliable power access.

By Carl Fleming, Fritz Lark, and Olivia Johnson, transactions attorneys at McDermott Will & Emery

The surge in artificial intelligence (“AI”) activity, most recently driven by White House announcements related to data center colocation and large-scale infrastructure projects like Stargate, has intensified the demand for data centers and accelerated the push for alternative energy solutions. On December 10, 2024, Google announced a new energy partnership with clean energy developer Intersect Power and asset firm TPG.¹ Google plans to invest $20 billion over the next five years to build out data center capacity in the U.S. using renewable energy sources. The data centers will be co-located with renewable energy assets, allowing Google to act as the anchor offtaker for the co-located industrial parks.² This announcement comes on the heels of Google’s plan to purchase nuclear energy from multiple small module reactors developed by Kairos Power.³ As utilities struggle to meet AI data centers’ need for electricity, renewable energy alternatives provide an enticing option for developers.

AI Data Centers’ Power Problem

Across the U.S. and worldwide, energy demand is soaring with the increased and growing uses of artificial intelligence. AI facilities are filled with powerful servers that run complex algorithms to aid AI’s learning from expansive amounts of data. However, the process requires tremendous amounts of energy to support the necessary computing power. Often, a data center may require the same amount of energy as a small town thus creating stress on local power grids and challenging utilities’ ability to provide reliable power.⁴ AI is set to create a 160% increase in data center power demand over the next five years. While U.S. power demand has remained relatively stagnant in the past decade due to developments in efficiency, researchers estimate energy demand will rise approximately 2.4% with .9% of that demand tied to data center growth. By 2030, data centers will account for nearly 8% of all U.S. power usage.⁵ Access to reliable power, therefore, has become a critical factor in data center development.

Opportunity for Renewable Energy Sectors

Many powerhouses in the AI and data center field have also been leaders in decarbonization efforts. But the growing strain of energy access has caused some of these companies to reckon with stagnant climate-friendly gains. Google’s renewable investments with Intersect and Kairos come after Google released its 86-page sustainability report wherein the company disclosed greenhouse gas emissions have risen 48% since 2019 due to the increase investment in AI technology.⁶ Likewise, Microsoft, which has pledged to be carbon-negative by 2030, has faced significant drawbacks from data centers designed and optimized to support AI workloads. PwC research found that consumers are willing to pay 9.7% more for sustainably sourced products, driving increased revenues, improved profit margins, and sustained lower output costs for companies willing to commit to renewable development.⁷

The technology sector has been an early and consistent driver of the renewable energy sector. Amazon, Apple, Google, Meta, and Microsoft account for over 45 GW of renewable energy purchases. Tech companies’ increased demand for AI coupled with commitments to 100% carbon neutral policies, unique positions renewable energy developers to take advantage of tech’s rising energy demands.⁸

A New Era of Growth

In early December, the International Energy Agency gathered investors, researchers, and developers in Paris, France to discuss the relationship between AI and energy, highlighting energy needs and opportunities for renewable development, thus echoing a global trend of increased interest in renewable energy’s capacity to quell climate change concerns associated with data  center reliance.⁹ As data centers expand and the toll on local grids rises, communities and tech developers look increasingly to renewable energy innovation and development to answer the call.

Another example in prolific energy investment in the data center sphere is Microsoft’s investment in the reopening of Three Mile Island Nuclear facility. While the facility was originally shuttered in 2019 due to difficulties competing with traditional energy sources, Microsoft’s sign-on to the $1.6 billion projects is indicative of the tech industries’ appetite for carbon free energy solutions.¹⁰ In addition to Microsoft’s investment in Three Mile Island, Google and Amazon have each announced investments in nuclear technology, supporting the development of small modular reactors.^{11 12}

What is Next for Renewable Energy Developers and Investors?

Tech companies consistently show a willingness to invest in less mainstream energy technologies, be it wind, solar or nuclear, and with demand on the rise with no sign of slowing down, renewable energy developers will find themselves in a primed position to increase development and meet tech’s needs while also providing lucrative investment opportunities for private equity and investment funds.

About the Authors:

Carl J. Fleming, partner at McDermott Will & Emery, is a transactional lawyer whose principal areas of practice are renewable energy and private equity. He leads transactions throughout the US and worldwide for a number of the renewable industry’s leading developers, global private equity funds and Fortune 500 companies.

Fritz Lark, partner at McDermott Will & Emery, advises clients on M&A transactions, with a focus on energy, utilities and digital infrastructure. He represents infrastructure funds, utilities and other investors in public and private company mergers, acquisitions, joint ventures, equity investments, and debt and hybrid securities issuances among other transactions.

Olivia D. Johnson, associate at McDermott Will & Emery, focuses her practice on corporate advisory and transactional matters.

¹ https://www.utilitydive.com/news/google-intersect-power-co-located-energy-park-data-center-ferc/735198/

² https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20241210-5090&optimized=false

³ https://blog.google/outreach-initiatives/sustainability/google-kairos-power-nuclear-energy-agreement/

⁴ Why Utilities Are Struggling To Meet AI Data Centers’ Need For Electricity

⁵ AI is poised to drive 160% increase in data center power demand | Goldman Sachs

⁶ https://www.npr.org/2024/07/12/g-s1-9545/ai-brings-soaring-emissions-for-google-and-microsoft-a-major-contributor-to-climate-change

⁷ https://www.pwc.com/us/en/services/esg/library/decarbonization-strategic-plan.html?WT.mc_id=CT3-PL300-DM1-TR1-LS2-SC_XS-CL-CN_SUSTAIN-Google&gad_source=1&gclid=EAIaIQobChMIq_yn2fmsigMVcK1aBR2ebi8bEAAYAiAAEgKbHfD_BwE&gclsrc=aw.ds

⁸ https://www.spglobal.com/market-intelligence/en/news-insights/research/datacenter-companies-continue-renewable-buying-spree-surpassing-40-gw-in-us

⁹ What the data centre and AI boom could mean for the energy sector – Analysis – IEA

¹⁰ Three Mile Island restart could mark a turning point for nuclear energy as Big Tech influence on power industry grows – NBC Los Angeles

¹¹ Google signs advanced nuclear clean energy agreement with Kairos Power

¹² Amazon Invests in X-energy to Support Advanced Small Modular Nuclear Reactors and Expand Carbon-Free Power — X-energy

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