Data centre expansion accelerates global energy and environmental challenges amid AI boom

The rapid growth of data centre construction driven by AI and cloud computing is reshaping global energy demands and environmental strategies, with innovative solutions needed to ensure sustainability amid rising costs and resource constraints.

The global digital transformation, powered by the rapid growth of artificial intelligence (AI) and cloud computing, is driving an unprecedented surge in data centre construction, with investments projected to reach a staggering US$7 trillion. According to a recent report by Allianz Commercial titled “The Data Centre Construction Boom,” this expansion is primarily driven by tech giants, with the US and China leading the charge. The report highlights that the US is expected to provide two-thirds of the global data centre power demand by 2028, while Greater Beijing already accounts for around 10% of worldwide hyperscale capacity. These vast facilities, often costing upwards of US$20 billion, are described as the factories of the digital economy, requiring highly specialised risk management and insurance solutions to mitigate the complexities involved.

However, the report also underscores significant challenges facing the industry. Construction costs have escalated sharply, with typical projects now costing between US$500 million and US$2 billion, compared to a few hundred million a decade ago. These projects face tight construction schedules and logistical complexities related to transporting massive equipment, which increase the risk of delays, cost overruns, and workmanship issues. Moreover, the burgeoning energy requirements pose a critical bottleneck. Global electricity consumption by data centres is projected to double to 945 terawatt hours by 2030, equivalent to the entire energy use of Japan. To address these power challenges, developers are increasingly turning to on-site renewable energy sources, gas generation, and even advanced technologies such as small modular nuclear reactors to ensure reliable supply.

Supporting this trend, developments in the US illustrate a growing shift toward decentralised energy solutions, notably microgrids. These systems, capable of operating independently from the main grid, are gaining traction through combined public-private investments. Recent projections estimate US microgrid capacity could more than double to 10 GW by the end of 2025, reflecting the need for resilient and flexible power infrastructure to support expanding data centre operations. This is particularly important as US power consumption is hitting record highs, driven heavily by data centres, AI technology, and other digital industries. The US Department of Energy reports that data centre electricity usage has tripled over the past decade and is forecasted to double or even triple by 2028, accounting for up to 12% of the nation’s total electricity consumption.

Nuclear power is also expected to play a growing role in meeting these energy demands. Analysts from Wood Mackenzie predict a 27% increase in US nuclear generation from 2035 to 2060, driven by the electrification surge from data centres and other sectors. This aligns with broader global trends, where data centre electricity demand is forecast to jump from around 700 TWh in 2025 to 3,500 TWh by 2050. Nevertheless, this vast expansion of digital infrastructure places increasing strain on existing power grids. An S&P Global report anticipates that US data centres will require 22% more grid-based power by the end of 2025 compared to the previous year, escalating to nearly three times the demand by 2030. This highlights the urgent need for substantial investments in energy infrastructure to keep pace with the exponential growth in digital services.

Environmental concerns are also intensifying alongside this construction boom. The increased use of lithium-ion batteries in data centres raises heightened fire risks, while water consumption for cooling, up to 19 million litres per day at a single site, places significant stress on local ecosystems. These issues are particularly salient in Asia, where data centre capacity continues to grow rapidly. The Asia Pacific region currently holds about 30% of global capacity and is forecast to expand at an annual rate of 21% through 2028, with China, Japan, and India leading, and Malaysia and Indonesia emerging as key markets. Allianz Commercial’s Regional Managing Director for Asia, Christian Sandric, emphasises the need for developers to address a broad spectrum of risks, including cyber threats, energy security, and environmental impact, as the region’s digital infrastructure scales.

In summary, while the data centre construction boom is a cornerstone of the global AI and cloud revolution, its sustainability will hinge on smarter risk management, sustainable design practices, and secure energy infrastructure. The industry faces critical tests from rising costs, resource constraints, and environmental impacts that demand innovative solutions and long-term resilience planning to secure the future of the world’s digital economy.

📌 Reference Map:

• ^[1] Business Today Malaysia – Paragraphs 1, 2, 3, 5, 6
• ^[2] Allianz Commercial Press Release – Paragraphs 1, 2
• ^[3] Reuters – Paragraph 3
• ^[4] Reuters – Paragraph 3
• ^[5] U.S. Department of Energy – Paragraph 3
• ^[6] Reuters (Wood Mackenzie) – Paragraph 4
• ^[7] S&P Global – Paragraph 4

Source: Fuse Wire Services