Data spending overtakes oil for the first time

The International Energy Agency has reported that global spending on data centres will reach around $580 billion this year, overtaking the $540 billion allocated to new oil supply projects. The agency described this comparison as a clear marker of how modern economies have become anchored in digital services, cloud computing and large scale AI models, all of which require vast physical infrastructure and reliable electricity.

Usage to triple by 2035

Electricity use from data centres is projected to approximately triple by 2035. AI systems are a major driver, and the IEA expects half of all demand growth to take place in the US, with Europe and China accounting for most of the remainder. Many new facilities are located near existing clusters around large cities, with around half of the sites currently in development designed to deliver at least 200 megawatts.

The concentration of this growth is, therefore, already testing the limits of energy systems. Grid connection queues for new facilities continue to lengthen, and in several regions networks are so congested that new requests have been paused. Shortages of transformers, cables and other grid components are adding to delays. These issues highlight how the rise of AI is now tightly linked to national energy planning, rather than being a purely digital challenge.

Electricity systems under growing pressure

The IEA describes the global system as entering an “Age of Electricity”, with most new energy demand coming through power grids rather than fossil fuels. Investment in electricity generation has increased significantly since 2015, yet grid investment has not kept pace. New solar and wind capacity is being deployed at record levels, but the lines and substations needed to carry this electricity to major users are often slowed by planning processes and supply chain constraints.

Cooling demand is creating additional pressure. Rising temperatures and rising incomes in many regions are driving higher peak electricity loads from air conditioning. These peaks often coincide with the load patterns of data centres, electric vehicles and electrified heating. As a result, grids are increasingly stretched while they await new capacity and greater flexibility from storage technologies.

In several established markets, energy regulators have warned that large electricity users may need to be subject to stricter technical rules or new pricing structures to ensure network stability. Data centres are therefore becoming part of broader energy security discussions, particularly in regions where supply margins are tightening.

Power shortages slow construction across EMEA

Power constraints are directly affecting the pace of new construction across Europe, the Middle East and Africa. New research from Savills shows that only around 850 megawatts of new power capacity for data centres has been delivered across the region so far this year, representing an 11% decline compared with the same period last year. New take up has also slowed to approximately 845 megawatts, roughly half of 2024’s level.

This slowdown is not driven by falling demand. In fact, total contracted power capacity has risen to almost 14,500 megawatts, up by 12% year on year. Occupancy rates have increased to 91%, and around a quarter of new take up is now pre let. These figures illustrate that operators are securing power well ahead of time because there is no guarantee that future capacity will be available when needed.

Property advisory firm Savills found that established hubs continued to expand over the past year, including France, Germany, the UK and Ireland. Strong growth was also recorded in emerging markets such as Portugal, Saudi Arabia, Spain, the UAE and Sweden, where land and power availability are more accessible. This trend suggests that some operators are shifting attention to secondary and tertiary locations that offer fewer bottlenecks and more flexible permitting.

The effects of cost inflation

It seems that cost inflation remains a significant factor. Across EMEA, data centre build costs now range between roughly $7.3 million and $13.3 million per megawatt of IT load. It seems that some cities have even experienced double digit annual increases in land prices, labour and equipment. The result is that these rising costs are lengthening project timelines and prompting developers to form closer relationships with suppliers to secure key components earlier.

Electricity consumption forecasts continue to add urgency. One well known industry analysis last year suggested that up to 40% of data centres could face power availability constraints by 2027, and that total electricity consumption for AI optimised servers could reach around 500 terawatt hours. This would represent more than two and a half times the level recorded in 2023.

Superconductors move into data centre design

While grid upgrades are essential, many of the most immediate challenges are emerging inside existing data centre campuses. As AI systems become more computationally intensive, rack level power has risen from tens of kilowatts to around 200 kilowatts in just a few years. Some operators are now planning for 600 kilowatts per rack, and there is growing discussion of multi-megawatt rack architectures.

A US based engineering company, backed by several major technology investors including Microsoft, has now adapted high temperature superconducting cables for use within data centres. The firm’s first commercial system is designed to deliver three megawatts of low voltage power through superconducting cables cooled with liquid nitrogen to approximately -196 degrees Celsius. This cooling allows the material to carry electricity with zero loss, which in turn supports far higher power density.

The company reports that its cables require around 20 times less physical space than equivalent copper cables and can deliver power roughly five times farther within a campus. A demonstration installation has already been completed at a simulated facility, and pilot deployments at live data centres are expected next year ahead of a planned commercial launch in 2027. These technologies do not replace the need for additional grid capacity, but they allow operators to make better use of limited on site power and cooling infrastructure.

Data centres and AI companies

For data centre operators, the expansion in investment highlights both opportunity and risk. Facilities with dependable power connections, competitive energy prices and space for expansion can attract long term demand from cloud providers and AI companies. At the same time, rising construction costs, lengthy permitting and potential regulatory intervention make project planning more complex. There is increasing attention on how much electricity AI infrastructure consumes, which may influence approval processes in some regions.

It seems that AI companies now face equally important considerations. Access to high density, well powered infrastructure directly shapes the pace at which new models can be trained and deployed. Delays in securing suitable hosting capacity can slow research progress or increase operational costs. There is also growing pressure for AI to run on renewable energy, which means the location of data centres and the structure of power contracts matter more than ever.

Governments, economies and businesses

Governments now have to balance national competitiveness with energy security and climate commitments. Data centres underpin cloud services, logistics, digital payments and AI driven innovation, yet they also place significant demands on power networks. This means that policymakers must decide where new facilities can be built, how grid upgrades should be prioritised and how to maintain public support when large projects are proposed near urban areas.

Economically, the sector supports construction, engineering, manufacturing and digital roles. The long term nature of data centre contracts also encourages investment in renewable energy, battery storage and potentially small modular nuclear reactors, which several countries are exploring as a source of stable low carbon power for high demand sites.

For ordinary businesses using cloud and colocation services, the main effects are likely to be reliability, availability and cost. Capacity constraints may lead to higher hosting costs in busy regions, while areas with strong renewable resources and efficient planning may become more attractive for new deployments.

Investors and infrastructure funds increasing

Another relevant trend here is that investors and infrastructure funds continue to increase their exposure to the sector. Since 2021, around 80% to 90% of the value of closed data centre deals has involved private equity, infrastructure funds or real estate investors, compared with half in 2020. This reflects confidence in the long term demand for digital infrastructure but also raises questions about concentration of ownership in assets that underpin national digital resilience.

Challenges and criticisms

The scale of AI related electricity use has raised many questions about environmental sustainability, especially where data centres draw power from grids still reliant on fossil fuels. Concerns have been raised about water consumption for cooling, land use in crowded urban regions and the impact of construction on local communities.

Energy regulators have also highlighted system risks linked to large power users. For example, data centres can influence grid stability if they ramp up unexpectedly or disconnect suddenly, prompting discussions about new standards or pricing structures. There are wider equity concerns too, as global statistics show that hundreds of millions of people still lack basic access to electricity while trillions of dollars flow into advanced digital infrastructure.

What does this mean for your business?

The trends here show a sector that’s expanding rapidly while running up against some clear structural limits. Investment is rising because demand is strong and immediate, yet the electricity needed for large scale AI is difficult to deliver at the pace operators require. This creates a landscape where data centres are becoming essential to economic performance, but their growth is constrained by the slow evolution of energy infrastructure.

Operators now depend far more on securing reliable power than on adding floorspace or equipment. This means that sites with firm grid connections and competitive energy costs will be best placed to meet rising AI demand, while regions with slow planning processes or congested networks risk falling behind. AI companies face similar pressures because training and running advanced models depends on reliable access to powerful, energy intensive processing systems. Delays caused by grid bottlenecks or supply chain issues can slow deployment and raise operating costs.

Governments must now balance digital competitiveness with energy security and climate targets. Data centres support cloud services, logistics, payments and AI innovation, so the ability to host them is becoming a strategic priority. Grid upgrades, renewable investment and more efficient permitting processes will be required if countries want to remain competitive. This matters directly to UK businesses, which rely on stable cloud services and cost effective data processing. Rising pressure on electricity networks could influence the reliability and price of digital services across the economy.

It seems that investors are continuing to increase their involvement because long term demand remains strong, although greater private ownership of strategic infrastructure raises questions about affordability and resilience. Meanwhile, environmental concerns around electricity use, water consumption and land availability remain under close scrutiny. These issues highlight the importance of ensuring that rapid AI and cloud expansion aligns with national climate goals and local community interests.

The overall picture, therefore, appears to be that of a sector that will continue to grow but will be shaped most of all by the availability, cost and cleanliness of electricity. The choices made now on grid investment and energy policy will likely define how quickly AI infrastructure can expand and how the associated benefits are shared across economies and industries.

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The Advantages of Hydrogen 

The great advantages of hydrogen as a fuel include dramatically reduced greenhouse gas emissions, it only produces water vapour as a by-product when burned, it has a high energy density, and it can be produced from renewable sources, thereby making it a cleaner and more efficient fuel option for various applications.

The Challenges 

Extracting hydrogen at scale through the electrolysis of water using renewable energy is a little used (1 per cent of global production) but very promising way to produce green hydrogen. However, its production comes with some key challenges which are:

• The need for powerful wind turbines and plenty of wind to power the desalination plant.
• The need for abundant water resources from which to extract the hydrogen.
• The high costs of some current methods of converting energy at sea and bringing it in a cable to shore: the cable is the costly part.

The Answer? Offshore Wind Farms Connected to Electrolysers

German company Lhyfe believes the answer to these challenges is to use high capacity offshore floating wind farms with turbines connected to electrolysers that utilise seawater, using the green energy to power the separation process.

Using powerful wind turbines, offshore wind farms harness abundant wind energy, and by connecting them to electrolysers which utilise seawater, plus a hydrogen production plant, the process overcomes the previous challenges because:

• Seawater is an abundant source of hydrogen.
• Converting the electricity to hydrogen using the seawater and an offshore production plant beneath the turbines, means the hydrogen can be piped ashore using the many existing North Sea pipelines. This is much less costly than using expensive electric substations and cables.

Two Plants Commissioned Following Successful Pilot 

With this in mind, in September 2022, Lhyfe installed the world’s first renewable green hydrogen pilot plant at sea, capable of producing up to 400 kilos of hydrogen a day off the Atlantic coast.

The success of Sealhyfe has led to the commissioning of the first floating platform for green hydrogen production off Le Croisic, directly connected to a floating wind turbine, with a second, much larger project planned called HOPE, this time off the coast of Belgium. Its 10 MW production unit, due for commissioning in 2026, will have the capacity to produce up to four tonnes of green hydrogen per day.

Is Hydrogen Dangerous As A Fuel Source? 

Anyone who’s watched the black and white film of the hydrogen filled Hindenburg airship exploding will be aware of how flammable hydrogen is. It also has a low ignition point, and is odourless and colourless, making leaks difficult to detect. That said, other fossil fuels we use, for example petrol and gas, also come with similar risks but are generally used safely. Also, with hydrogen, dispersal in air can mitigate the risk of explosion, and various safety measures can be employed to handle and store it safely.

Oxygen 

One other beneficial aspect of extracting hydrogen from seawater is that oxygen is also produced as a byproduct. Lhyfe is developing ways to reinject this oxygen byproduct back into aquatic environments, which, due to global warming and polluting industrial activities, are increasingly depleted of oxygen, in order to reoxygenate them. This is particularly important since 50 per cent of the oxygen on earth originates in the ocean. Scientists have observed declining dissolved oxygen levels in the global ocean since the 1950s, predicting a further decrease of up to 7 per cent by the year 2100 as a result of ocean warming and nutrient pollution.

What Does This Mean For Your Organisation? 

Not only is there a well publicised need for urgent CO2 emission reduction and decarbonisation of our lifestyles and industries, but there’s also a need to find ways to stabilise and restore the functioning of ecosystems in order to limit global warming to 1.5°C.

Lhyfe’s idea for sustainable green hydrogen production appears to address both issues: by producing a sustainable green fuel and by putting the oxygen byproduct of the process back into the ocean.

The hydrogen from offshore farms produced at sea, using just seawater and wind energy, could count towards decarbonising known high emitters of CO2 on land, for example lorries, buses, and waste collection vehicles, and industry. Industrial production of chemicals, metals, glass, steel, and more emits gases which contribute to global warming.

As such, green hydrogen could have a significant and positive impact on many industries and could create new opportunities as a new industry of its own. That said, extracting hydrogen at scale through the electrolysis of water using renewable energy is still relatively new and little used, making up only 1 per cent of global hydrogen production. Investment and some considerable scaling up will be needed to help increase its impact and it may also take some time to deploy more of these green hydrogen windfarms in more places around the world.

However, the technology now exists, has proven successful in trials and looks set to be one of many methods that can be used to tackle the climate crisis and targets related to it. Offshore wind offers more additional scale than most other renewable power sources, meaning that that linking hydrogen producing units to turbines does at least have the potential to be scaled up and could prove to be a realistic way to help reduce our reliance on natural gas in the future.

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IAG and NPT 

IAG is the parent company of Aer Lingus, British Airways, Iberia, Vueling and LEVEL. NPT is a Teesside based cleantech company whose biofuel making technology offers IAG a pathway to the production of Sustainable Aviation Fuel (SAF).

How Does NPT Make Aviation Fuel From Agricultural Waste And Wood Residue? 

At the moment, NPT’s technology can convert agricultural waste and wood residue feedstocks into second generation bioethanol. This could be processed into fuel if NPT had the right production facility, which the investment from IAG will provide.

The process that NPT uses to turn waste and wood residue feedstocks into second generation bioethanol, is known as its REFNOVA® branded environmentally friendly process.

This involves pouring agricultural waste, for example feedstock reduced to particle sized pieces, into a fluidisation vessel to neutralise alkali earth metals. A hot air dryer is used to remove excess moisture, before using high temperatures to extract the lignin component and vaporise the sugars. The vapourised sugars are then condensed into NOVASUGARS which can be fermented into bioethanol.

Investment Will Build A New Specialised Aviation Fuel Plant 

In addition to its $865 million commitment to SAF, IAG’s latest investment will progress the development of ‘NOVAONE’, NPTs first waste to fuel commercial scale production facility. This will be the first of its kind in the UK and construction is expected to begin later this year, with the facility producing biofuels by 2025. This will create major employment opportunities in the north east of England.

The Benefits 

For IAG, some of the main benefits of investing in NPT include:

• Securing a supply of SAF ahead of the introduction of the UK Government’s SAF mandate, which is expected to be introduced from 2025.
• Meeting its target of using target of one million tonnes of SAF by 2030. IAG was the first European airline group to commit to the use of 10 per cent SAF by 2030.
• Supporting the decarbonisation of its own airlines and the other airlines in its group. IAG intends to be net zero by 2050.

Some of the main benefits of the widescale use of SAF in the aviation industry could be:

• Decarbonising by replacing the need for fossil fuel derived and synthetically created materials.
• Saving costs.
• Contributing towards a net zero global economy.
• Maximising the use of unwanted and already farmed by-products, rather than driving the need for more fossil fuels and contributing to climate change, in other words minimising the impact of its consumption on the natural world.
• Having the ability to meet its own green targets and government green targets and mandates.

The Only Realistic Option For Long Haul Decarbonisation 

Luis Gallego, IAG’s CEO, said: “Sustainable Aviation Fuel is the only realistic option for long haul airlines to decarbonise, which is why investment in this area is so critical.” He also highlighted the commitment needed by saying “We are not just buying SAF, we are willing to invest in developing the industry, but we need governments in the UK and Europe to act now to encourage further investment.” 

A Transformational Milestone 

Sarah Ellerby, Chief Executive of Nova Pangaea Technologies, highlighted the importance of the investment by IAG in NPT and the new SAF plant, saying: “This is a transformational milestone, and a real endorsement of the crucial work Nova Pangaea Technologies is doing” and that “Our facility will be the UK’s first commercial plant of its kind, and it will play a crucial role in decarbonising the aviation sector, as well as providing local employment opportunities”.

Electric Engines Still Some Way Off 

Aircraft using SAF is therefore probably the only good interim solution in the period between winding down on the use of fossil fuel engines and before the introduction of electric engines that are capable acting as suitable replacements, certainly for long haul.

The development of electric aircraft engines still has several significant challenges to overcome: issues like energy density, weight, charging infrastructure, regulation, certification, and economic factors are all substantial hurdles.

Smaller, short range planes and urban air mobility solutions are making progress, with some small electric planes in operation and hybrid systems being explored.

However, the widescale introduction of fully electric engines in commercial long haul aviation looks likely to be at least a couple of decades away. Battery technology needs to improve, and substantial investments in research, development, and infrastructure are required.

What Does This Mean For Your Organisation? 

With the aviation industry, a major fossil fuels customer and CO2 producer, needing to find an effective and sustainable way to decarbonise and still operate effectively, the fact that commercial electric engines for lond haul are years away means something is urgently needed in the meantime.

Government mandates and green targets are looming so it’s not surprising that IAG has been investing in an SAF producer (NPT) and has financed the building of a production plant. The SAF supply will give IAG the chance to start decarbonising its wider fleet as well as meeting its green targets, staying ahead of government mandates, and showing their green credentials and commitment.

The wide use of SAF would have many environmental benefits, for example maximising usage of natural waste products, reducing reliance on fossil fuels, cutting CO2 and emissions pollution, and more. With the input product being agricultural waste and plants being built like the NPT one, this could make aviation fuel much more sustainable and could help in tackling the climate crisis before alternatives like clean electric commercial aircraft engines come along.

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