DeepSeek AI will fuel more data center work


When China-based DeepSeek gained mainstream attention with its low-cost artificial intelligence model earlier this year, some wondered if demand for data center power had been overhyped.

DeepSeek, which develops large language models similar to OpenAI’s ChatGPT, claims that its highly efficient AI technology can effectively reduce computing costs and overall power needs, casting doubt on how much energy infrastructure data centers of the future might require.

But John Medina, senior vice president at Moody’s Ratings, thinks these advancements could fuel more growth, not less.

“What that does is it lowers the cost of computing and potentially increases the number of new companies and new applications that can be created,” said Medina. “It actually could lead to more usage than less usage.”

John Medina

Permission granted by Moody’s Ratings

 

Mitchell Osborne, director of MEP at Adolfson & Peterson Construction, a Minneapolis-based general contractor, echoed that sentiment.

“While more efficient AI models will reduce the amount of power consumed, we are still in AI and quantum computing’s infancy,” said Osborne. “I do not foresee data centers or power infrastructure construction slowing down.”

Power construction is surging alongside data center projects as contractors rush to keep up with soaring demand, according to industry sources. Tech giants such as Amazon, Microsoft and Meta are rapidly expanding their data center footprints. Meanwhile, a joint venture among OpenAI, Softbank and Oracle will invest $100 billion in artificial intelligence infrastructure, with the potential to scale up to $500 billion, according to a White House press conference.

That shift is fueling a surge in power construction, said Ryan Wobbrock, vice president at Moody’s Ratings. He said utilities and power producers are rapidly increasing expenditures to meet the energy needs of data centers.

“We’re certainly keeping track of that, and we’re seeing the fruits of it really come through in companies’ announcements,” said Wobbrock. “Every time a company has a public statement, it seems to increase its capital budget, and a lot of that is tied to the data center growth.”

New starts and renovations

The surge in new power construction is also driving local grid work as well, said Osborne.

“I absolutely see data center and power project trends continuing,” said Osborne. “In the local market, substations are being specifically built for data centers and stability upgrades are being subsidized by these companies for existing grids.”

Older power plants, once slated for retirement, are being enhanced rather than decommissioned, said Michael Byrne, vice president at Linesight, a Dublin-based construction consultancy firm. That’s largely because new power projects still can’t keep up with the pace of data center expansion in key regions.

From 2014 to 2016, data center energy use reached about 60 terawatt-hours. By 2018, the figure jumped to about 76 terawatt-hours. In 2023, data center energy use hit 176 terawatt-hours, about 4.4% of total U.S. electricity consumption. That will jump to between 325 and 580 terawatt-hours by 2028, according to the Energy Department.

The U.S. power grid was not designed to handle this level of demand growth, said Theodore Paradise, chief policy and grid strategy officer at CTC Global, an Irvine, California-based advanced conductor manufacturer for overhead transmission powerlines.

“The transmission system is the critical enabler of all this. It is the existential piece to whether you can add additional supply,” said Paradise. “Interconnection costs [are] getting bigger. Those might have been $20 million or $40 million for substation work. Now, we’re seeing interconnection costs that can be hundreds of millions of dollars or even over a billion dollars in some cases.”



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