Skip to main content
Marsh logo

Article

Powering the future of data centres

Global demand for data centres is growing exponentially. Businesses across many different sectors are reliant on them to supply the storage and processing capabilities that drive their operations, from terabytes of cloud storage to power-hungry artificial intelligence (AI).

03/03/2025 · 5 minute read

Global demand for data centres is growing exponentially. Businesses across many different sectors are reliant on them to supply the storage and processing capabilities that drive their operations, from terabytes of cloud storage to power-hungry artificial intelligence (AI).  

It’s not just businesses and investors that recognise data centres’ significance. In September 2024, the UK government announced that they are now a part of the country’s critical national infrastructure.  

Alongside the opportunities this growth presents there are challenges and risks, especially related to power needs. Large data centres can consume upwards of 100 megawatts (MW) of power, with emerging services such as AI and cryptocurrency likely to drive power demands still higher in the future.  

As well as volume of power, consistency of supply, reduced reliance on fossil fuels and stability of cost are just some of the challenges that data centre owners face.  

Data centres can put significant strain on national grids, to the extent where some countries are limiting access. For example, both Ireland and Singapore have placed moratoriums on new data centres connecting to their national grids, amid concerns over domestic power supplies. Even in the UK, owners of new sites face long waits to be connected to the grid.  

However, demand for new data centres continues unabated and owners are looking for power solutions that don’t rely solely on national grids. Those solutions include different ways of generating power – such as renewables, lithium-ion batteries and nuclear power - and new types of relationship between power providers and data centres.  

Future-looking power generation

With both data centre owners and their clients under pressure to reduce carbon emissions, finding sources of power that are not derived from fossil fuels is a priority. While there is significant innovation in the energy sector, different options introduce different risks. For example, renewables such as wind and solar are unlikely to be able to provide the consistency of baseload power that large data centres require. Lithium-ion batteries can store huge volumes of power, but pose a fire risk, increasing the risk of outages from damaged battery packs. 

Nuclear power is another emerging option. Small Modular Reactors (SMRs) can generate the required amount of low-carbon, low-cost electricity. Further ahead, solutions such as nuclear fusion will open up even greater opportunities for addressing vast low-carbon energy needs at low cost. But as with many breakthrough technologies, risks such as high first-of-a-kind production costs, confidence in safety and reliability, as well as regulatory barriers in some regions, are key issues.  

Microsoft’s recent commitment to nuclear as part of its strategy for reopening Three Mile Island nuclear power station to support its data centres, may act as an endorsement of large scale private nuclear investment in the future.  

Rethinking the relationship between power providers and data centres 

Microsoft’s decision to revive a mothballed nuclear power plant, at significant cost, shows that data centre owners are prepared to take different approaches to fulfilling their power needs. Other models include on-site power and virtual power purchase agreements (VPPA).  

On-site power puts power production and a data centre together on a single site. For example, a solar power plant and data centre could be located together. This provides obvious advantages in terms of the close relationship between a data centre owner, their clients and power plant owners, but also introduces a number of operational risks.  

Finding land to build both a power plant and data centre together has geographic and environmental challenges. In addition, it is unlikely to meet other required infrastructure needs such as low latency connections and be close to end users. Suitable sites will be difficult to source, and for nuclear power there will be additional issues, such as exclusion zones, that will make co-location of nuclear power and data centres almost impossible.  

From a business risk perspective, the data centre and power plant are likely to be built, owned and operated by different companies, requiring careful discussion around the impact of one business on the other. For example, if there is a loss event such as a fire in one business, how will the other business and its clients be compensated?  

Typically, data centres are required to have exceptionally high availability of around 99.995%, which roughly equates to a maximum 28 minutes of downtime per year. Not meeting this commitment can expose the data centre owner to large financial penalties through contracts, so assessing the full impact of a power outage is vital.  

A different option is a VPPA, often known as a private line or pulling agreement. This is a contract between the data centre and a third-party power producer that specifies the data centre will buy, and the party power provider will supply, consistent stable power. The terms of the contract, and business interruption insurance to cover any breaches, must be very carefully considered.  

Meeting future electricity demand for data centres will be fundamental to realising the business and economic potential offered by new technologies such as AI. But power resources are currently causing a bottleneck, with pressure on both data centre owners and power providers to find new approaches. We are seeing exciting innovations to address this, but with new risks alongside the opportunities. Ensuring the risk of data centre downtime caused by power outages and identifying the potential risks of emerging forms of power are just two important areas of focus for owners and investors alike.

If you would like to discuss any topic raised in this article, please reach out to your Marsh contact.

Get in touch

Meet the authors

Jason Payne

Jason Payne

Data Centre Lead, Real Estate Practice, Marsh UK

  • United Kingdom

Alastair Nicklin

Alastair Nicklin

Vice President, Power and Renewable Energy

  • United Kingdom

Related insights

Telecommunication towers with wireless antennas on sunset sky.

Real Estate

04/08/2021
Placeholder Image

Article

Why risk mitigation starts with contractual negotiations

03/03/2025
Placeholder Image

Expertise

Data Centre Insurance and Risk Management

15/01/2025