AI data centre boom threatened by power availability and limited supply chain capacity

The global surge in AI and machine learning development is fuelling a rapid expanse in the data centre market. But this progress risks being hamstrung by power constraints and equipment delays. AI requires larger, more complex and power-hungry data centres to manage the intense technological demands, but the supply chain and national power grids are struggling to keep up.

The annual Data Centre Cost Index from global professional services company, Turner & Townsend, analyses the current average cost per watt to build data centres in 50 global markets, and uses survey responses from 250 sector leaders to pinpoint trends across the data centre industry.

The top of the cost index shows how costs are being impacted by constraints in high-performing markets, where demand is exceeding available power, the supply of skills and materials. Tokyo, at US$14.3 per watt, is the most expensive market for the second year in a row – with labour shortages and new limits to working overtime continuing to put strain on delivery. Meanwhile, Singapore is now the world’s most power-constrained data centre market and has risen into 2nd place in the rankings, at $US13.8 per watt, from 5th position last year.

These are followed by longstanding hotspots including Zurich (US$13.3 per watt), Silicon Valley (US$12.8 per watt), and New Jersey (US$12.4 per watt) – which appear consistently in the top five of the index. These mature markets known for industrial innovation and technology can be expected to see further growth as the AI and machine learning revolution continues.

This is the eighth year of the index, and sees five new markets added: Lagos, Helsinki, Lisbon, Cardiff and Bordeaux. This reflects the varied and growing number of new targets for investment in data centres. Given the limited existing supply chain capability in these new markets, several enter the index with higher comparative costs than might be expected, but this is forecast to stabilise over time. Lagos (joint 6th at $12.0 per watt) is one example of this – with costs driven by the need to import much of the labour and materials.

The data centre pipeline in Scandinavian markets also remains strong. The colder climates and access to renewables counteract common challenges relating to cooling and net zero. Yet high dependency on an international supply chain and imported talent has cost implications. Oslo, Copenhagen and Stockholm now stand at 9th and joint 10th respectively in the rankings. Competition for supply chain expertise is set to heat up over the next 24 months as data centre developers move into the Scandinavian market and compete with established hyperscalers for resources. Skills shortages are also partly behind Auckland’s rapid rise from 16th place in 2023 to joint 6th, as it sees a limited supply chain and some loss of skills to neighbouring Australia.

Joining Copenhagen and Stockholm in joint 10th in the rankings is London at US$11.2 per watt. The UK is set to be an increasingly important market as investment is spurred on by the British government’s recent classification of data centres as ‘critical infrastructure’.

In light of the potential boom led by the AI revolution, and clients exploring new locations, Turner & Townsend is recommending ways to mitigate the risks of new markets and avoid rising costs and supply chain issues. To take advantage, the report suggests that clients centralise delivery to help them better assess global market pressures, draw on international talent, and build up local regional capacity in a coordinated way. The report also recommends targeting regions with other existing complex technological construction experience, as skills in life sciences and advanced manufacturing, for example, are more easily transferable.

Lisa Duignan, Data Centres Sector Lead, Europe, at Turner & Townsend, said:

“The digital revolution and interest in how AI can support our professional and personal lives is booming, helping the data centre market remain one of the hottest areas of the global economy. Data centres are increasingly seen by governments as critical national infrastructure, and there is clearly a huge opportunity for clients – but growing challenges, not least power supply and labour shortages, need to be managed.

“Traditional data centres ideally need to be near the location of digital demand they serve, but there is more geographic freedom for AI data centres where latency is less of a concern. This means many clients are branching out into new markets for data centre construction. However, this isn’t risk-free. While those locations may have access to less constrained power grids and avoid existing supply chain bottlenecks, this comes with programme challenges and risks associated with testing new supply chains for the first time.

“To make sure projects are sufficiently resourced and unlikely to encounter delays, skilled labour should be central to clients’ project plans. International expertise can still be drawn on while local talent is built up, and this is best coordinated through centralised global or regional delivery of data centre programmes.”