Concerns About AI's Energy Demand Rising Among Tech Leaders and Investors
The surging energy demand for data centers driving the AI boom is raising concerns among some tech business leaders and investors, according to a recent survey and interviews with investment advisers.
“For the first time ever, there’s an external factor that is beginning to limit growth, and that’s energy, plain and simple,” Ocient CEO Chris Gladwin told Newsweek.
Ocient makes software for large data-analyzing systems and conducts an annual survey of more than 500 tech leaders called “Beyond Big Data.” The most recent survey results released Monday reveal a striking change in thinking about energy, Gladwin said.
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More than half of respondents cited energy consumption at data centers as a top concern, and nearly a third said they were switching or upgrading their data warehousing to reduce energy consumption and energy costs.
“It wasn’t even an issue a year ago,” Gladwin said of the new energy concerns that have surfaced among IT decision makers. “I mean, that’s just a seismic shift.”
Gladwin said that his conversations with customers and the business data that Ocient gathers indicate that data center energy needs are growing at about 20 percent a year, “which is a ton,” he added. He said he expects energy costs to soon surpass hardware expenses to become the second-highest budget item for many companies, behind personnel.
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The graphic processing units required for generative AI and the training necessary to develop large language models, or LLMs, require enormous computing power, electricity and water for cooling the servers in data centers.
The explosive growth in AI is driving up energy needs and, in some cases, adding to greenhouse gas emissions at Big Tech companies. Microsoft and Google both reported significant increases in emissions this year, despite the companies’ ambitious climate targets, and that has raised concerns among some climate-conscious investors.
“Unfortunately, what we’re seeing is, with the sustainability targets, some companies are walking back from them, they’re softening them,” Amy Francetic, managing general partner of Buoyant Ventures, told Newsweek. The Chicago-based venture capital fund invests in digital climate solutions that can either help reduce emissions or help with climate change adaptation.
Francetic said her fund and others will be looking for investment opportunities in innovative approaches to improve energy efficiency in data centers and ways to help speed up the development and delivery of clean energy.
In the interim, however, she does not foresee clean-energy supply meeting the booming electricity demand from technology companies. That means at least some of that demand will be met with fossil fuels, bringing more greenhouse gas emissions and the potential to increase the carbon intensity of some tech companies.
“Anybody who cares about this and has Big Tech stocks in their portfolio is going to not have the outcomes that they’d hoped for,” she cautioned.
Tech stocks are often a popular part of “green” or ESG investment funds that offer environmentally aware investors options to do some social good as they seek to do well on their investments. Tech companies offer healthy market gains with far less carbon pollution when compared to companies in sectors such as shipping or manufacturing.
The recent rise in Big Tech’s energy demand could be taking some shine off its ESG appeal, however. Reuters reported this week that some ESG fund leaders with hundreds of billions of dollars under management are asking some sharp questions of tech CEOs about AI and energy use as they reconsider how heavily to invest in the tech sector for their sustainable funds.
The Reverend Kirsten Snow Spalding is vice president of the Ceres Investor Network at Ceres, a sustainability nonprofit. She said the network includes more than 200 institutional investors including religious endowments, pension funds and “big, big multi-asset class managers” with total assets under management reaching into the trillions of dollars.
“They come together because they’re committed to work on sustainability,” Spalding said, and tech companies have been an important sector.
Lately, she said, her conversations with investors have included questions about the tech sector’s energy consumption and the material financial risks associated with that.
“The investors, I think, are certainly concerned about emissions increases,” Spalding said, but added that many investors are aware that the rising emissions also reflect growth and the opportunity to use tech profits for clean-energy developments.
“They are really focused on how the company is going to put money into the clean-energy solutions,” she said.
Tech companies have long been involved in clean-energy development, and some, such as Amazon, are among the world’s largest purchasers of renewable energy.
The past four months, however, brought a remarkable burst of Big Tech activity on clean energy, including major new solar power developments by Amazon and Microsoft and Microsoft’s announcement late last month to purchase carbon-free nuclear power. That deal could result in restarting a closed reactor at Pennsylvania’s Three Mile Island nuclear facility.
Spalding also singled out Salesforce, the San Francisco-based business software company, as an example of a company using its investments and purchasing power to increase renewable energy options.
“They’re investing in the clean grid and in particular projects that are going to change the energy supply mix,” Spalding said.
Salesforce Executive Vice President and Chief Impact Officer Suzanne DiBianca was part of a Newsweek Horizons event last Wednesday during Climate Week NYC titled “AI: Climate Hero or Climate Villain?“
As the panel of experts dove into the topic of AI’s energy use, DiBianca described the Salesforce approach to both use data centers with access to clean energy and to make more efficient use of AI. For example, she said, when developing a large language model, the company targets its training to datasets relevant to the desired business tasks.
“One of our policy principles is to build LLMs in a way that uses, you know, the maximum amount of information with the least amount of energy,” DiBianca explained.
DiBianca said Salesforce is also tackling energy-related greenhouse gas emissions along its supply chain with contractual obligations for supplier companies to cut carbon pollution.
“They have to set science-based targets by a certain date, and we’ve given them tools to do that, to measure and manage their emissions,” she said.
Another panelist at the event, Microsoft Vice President of Energy Bobby Hollis, said that despite his company’s recent increase in greenhouse gases, Microsoft is still committed to an ambitious goal to become a carbon-negative company—removing more CO2 from the atmosphere than it produces.
“It was something that we knew would be difficult, it would be a stretch,” Hollis said. The AI boom means emissions are “growing slightly more quickly than we expected,” he said, but said he remains confident that Microsoft and the tech sector will improve efficiency to better manage both energy costs and emissions.
Hollis said there is a strong parallel between the present situation with AI’s energy demand and the spike in energy use associated with the early development of cloud computing, one that abated with engineering solutions that improved energy efficiency.
Gladwin at Ocient agreed with that comparison. A 40-year veteran of the tech sector, Gladwin said he has seen his peers rise to many engineering challenges over the years.
“We’ll be able to do it,” Gladwin said of the AI energy challenge. “It won’t happen overnight, but we will get this done.”