Venture capitalists have placed increasingly large bets on AI startups, investing over half a trillion dollars in the industry over the past five years.
But these days, the smartest AI investment may be in energy, according to in a Sightline Climate report. Researchers found that up to 50% of announced data center projects may be delayed. One of the biggest culprits is access to power.
Of the 190 gigawatts worth of data centers the company monitors, only 5 gigawatts are under construction. About 6 gigawatts of data center projects in Sightline’s database went live last year. A much larger percentage—about 36%—saw timelines slipping into 2025. The delays may eventually ease and affect large enterprises and other companies that use AI for their businesses.
This supply-demand squeeze is an opportunity for investors. Here’s why.
Big tech companies like Google and Meta have dedicated large chunks of their balance sheets to developing solar, wind and nuclear projects. These companies also support emerging technologies such as Form Energy’s 100-hour battery through direct investment and collaboration with utilities to accelerate their adoption.
Dozens of startups are pursuing technologies that address the energy problem. For example, Amperesand, DG Matrix and Heron Power are developing new power conversion technologies, while companies such as Camus, GridBeyond and Texture are building software that can manage the flow of electrons.
Power remains one of the most significant constraints for data centers, a deficit that isn’t likely to change anytime soon. AI is expected to increase data center energy consumption by 175% by 2030; according to at Goldman Sachs.
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These grid shortages are unprecedented in modern times and have driven up electricity prices across the country. This has prompted many technology companies to explore alternative ways of powering their data centers. (The Trump administration, sensing an impending political crisis, is urging tech companies to build their own energy source, pay higher rates, or both. Most had already made plans to do so, of course.)
Grid alternatives
Amazon, Google, Oracle and other big tech companies are working to minimize their reliance on the grid. Many data centers are designed using on-site power or a hybrid approach that combines on-site power with a grid connection.
Larger data centers lead the way. Less than a quarter of the projects that have identified an energy source will use on-site or hybrid. together they represent 44% of the total capacity.
The change is due in part to shortages of power generation equipment — specifically gas turbines — and an antiquated grid. This opened a way for alternative energy sources.
Google’s latest deal to power a new data center in Minnesota shows one approach to tackling the problem. The company will combine wind and solar power with a massive 30 gigawatt-hour battery from Form Energy. Google also partnered with Xcel Energy to devise a new rate structure that it says will help encourage the adoption of new technologies in the utility’s design process.
Form Energy’s battery is not the only example. Grid-scale batteries are poised to take a big bite out of the electricity market. By the end of this year, the US should have nearly 65 gigawatts of battery storage capacity, according to at the US Energy Information Administration. Like many of its peers, Form Energy is looking to capitalize on the momentum raising a $500 million round before a potential IPO.
Underrated technology
Energy supplies are only part of the story. Once the power reaches the network or data center, it must be managed, a task that mostly falls to the humble transformer.
Most of today’s transformers use huge volumes of iron wrapped in copper wire, a technology that is about 140 years old. It is reliable, but becomes too bulky as data center power requirements increase. By the time server racks reach 1 megawatt in power density, the power equipment needed to run them will take up twice as much space as the rack itself, one expert told TechCrunch.
That’s why investors have recently flocked to back solid-state transformer startups, which hope that silicon-based power electronics can replace ancient iron and copper technology. They are more expensive than existing transformers, but they are also flexible enough to replace many pieces of equipment in a data center, which will make them cost competitive.
Overall, the scale of investments in battery and transformer companies was much smaller than some of the successful rounds we’ve seen in the AI industry.
That’s not a bad thing – these rounds are more receptive to investors. Additionally, as the world electrifies everything from transportation to heavy industry, the need for power will only increase, giving investors a hedge against AI. Perhaps the best AI investment isn’t in AI at all.
