The Power Behind the Code: How AI Is Reshaping Global Energy

RITURAJ PHUKAN

“Major new IEA report brings groundbreaking data and analysis to one of the most pressing and least understood energy issues today, exploring AI’s wide range of potential impacts.”

Artificial intelligence is rapidly becoming a defining force of the 21st century, with the potential to transform the energy sector in the coming decade.

It is driving a surge in electricity demand from data centres around the world while also unlocking significant opportunities to cut costs, enhance competitiveness and reduce emission.

In a landmark report, the International Energy Agency (IEA) brings long-overdue clarity to this intersection, revealing how AI could radically reshape the global energy landscape in the decade ahead.

At the heart of the findings lies a paradox: AI is both a massive consumer of energy and a potential catalyst for decarbonization. The IEA’s Energy and AI report offers the most data-rich, globally informed analysis to date, unveiling the scale of AI’s electricity demand and its broader consequences for energy security, affordability, emissions, and innovation.

The energy-hungry data centres are the digital fortresses that form the backbone of AI operations, and the IEA projects that by 2030, global electricity demand from data centres will more than double to approximately 945 terawatt-hours (TWh).Driving this growth is the exponential rise in AI applications. Data centres optimised for AI workloads are projected to more than quadruple their electricity use by 2030 alone.

In the United States of America, for example, nearly half of all new electricity demand is expected to come from data centres by the end of the decade. The projected demand is more than what the country currently uses to manufacture all energy-intensive goods combined, including aluminium, steel, cement, and chemicals. In other advanced economies, data centres are projected to account for over 20% of new electricity demand, ending years of stagnation in power consumption.

Global Challenge with Varied Realities

While advanced economies are investing heavily in AI infrastructure, many developing nations remain sidelined. These countries, not including China, represent half the world’s internet users but possess less than 10% of global data centre capacity. Yet they are also showing promise: early AI deployments in some developing economies have improved efficiencies and optimised industrial processes, suggesting a potential leapfrog opportunity if barriers to digitisation can be overcome.

Countries that want to benefit from the potential of AI need to quickly accelerate new investments in electricity generation and grids, improve the efficiency and flexibility of data centres, and strengthen the dialogue between policy makers, the tech sector and the energy industry. There have also been promising use cases of AI in developing economies that have helped unlock new efficiencies and optimise processes.

Overcoming barriers to digitisation can help such economies leapfrog to AI solutions that offer cost and time savings. Emerging and developing economies other than China account for 50% of the world’s internet users but less than 10% of global data centre capacity.

A diverse range of energy sources will be tapped to meet data centres’ rising electricity needs, although renewables and natural gas are set to take the lead due to their cost-competitiveness and availability in key markets.

Half of the global growth in data centre demand is already met by renewables, supported by storage and the broader electricity grid. According to the study, renewables generation is projected to grow by over 450 TWh to meet data centre demand to 2035, building on short lead times, economic competitiveness and the procurement strategies of tech companies.

“AI is one of the biggest stories in the energy world today – but until now, policy makers and markets lacked the tools to fully understand the wide-ranging impacts,” said IEA Executive Director Fatih Birol. “Global electricity demand from data centres is set to more than double over the next five years, consuming as much electricity by 2030 as the whole of Japan does today. The effects will be particularly strong in some countries. For example, in the United States, data centres are on course to account for almost half of the growth in electricity demand; in Japan, more than half; and in Malaysia, as much as one-fifth.”

The Paradox of AI: Security and Sustainability

More data means more risks and energy security is increasingly becoming an area of concern. Cyberattacks on energy utilities have tripled in just four years, growing increasingly sophisticated, and ironically, in part, due to AI. Yet AI also holds the key to defending against such threats. It’s a double-edged sword that makes coordinated planning even more critical.

The availability of critical minerals is another looming issue; AI hardware depends on materials like cobalt, lithium, and rare earth elements which are not widely available and limited to certain regions. The IEA report estimates exponential demand from data centres will strain on global supply which could further throw a spanner on the dreams for a just andequitable future for all humanity.

On emissions, the report strikes a cautiously optimistic note. Yes, electricity demand from AI will add to global carbon output but the scale is relatively small in the context of the entire energy sector. Moreover, if deployed wisely, AI could be a powerful decarbonisation tool. From optimising grid operations to accelerating research in battery storage and solar PV, the technology could help slash emissions and fast-track clean energy innovation.

The Outlook for India

India is one of the fastest-growing internet markets, accounting for over 50% of global internet users but only less than 10% of the world’s data centre capacity. This disparity suggests significant potential for leapfrogging with AI-driven efficiencies if infrastructure is scaled up.Data centres in India are expected to contribute a notable share of the nation’s electricity demand growth by 2030. As AI adoption accelerates, the demand for clean power sources will be crucial to managing emissions and energy security.

India’s emphasis on expanding renewables, particularly solar and wind, aligns with the report’s finding that renewables will be vital in meeting data centre energy needs. Increasing renewable capacity can help India balance rising AI-related electricity demand while reducing carbon emissions.

Given India’s rapid digitization, there’s a pressing need to invest in grid infrastructure, improve energy efficiency in data centres, and develop policies fostering clean energy deployment for AI applications.Like other nations, India will face challenges related to the supply of minerals critical for data centre hardware. This could impact the cost and availability of AI infrastructure unless managed with strategic policies.

There is an unprecedented opportunity to use AI for optimizing agriculture, manufacturing, and urban infrastructure, potentially boosting efficiency and sustainability.India stands to benefit from AI by leapfrogging in digital and energy sectors, but it must proactively invest in renewable energy, digital infrastructure, and security protocols to harness AI’s full potential while minimizing environmental and energy security risks.

The Bottom Line

The Energy and AI report builds on insights from the Global Conference on Energy and AI (held in December 2024, the largest of its kind), as well as contributions to the AI Action Summit chaired by France and India. To keep pace with this fast-moving field, the IEA is also launching a new Observatory on Energy, AI and Data Centres as a central hub for global data, trends, and real-time tracking of AI applications in the energy sector.

The tech sector and energy industry are more intertwined than ever before. The widespread adoption of existing AI applications could lead to emissions reductions that are far larger than emissions from data centres – but also far smaller than what is needed to address climate change. There are large uncertainties on the path ahead, but these should not get in the way of concerted action. Delivering the energy for AI, and seizing the benefits of AI for energy, will require even deeper dialogue and collaboration between the tech sector and the energy industry.

The choices made today will shape not just the future of data, but the future of power itself. Widespread AI adoption could lead to emissions reductions that vastly outweigh those from data centres or fall well short of what’s needed to combat climate change.

Rituraj Phukan: Founder, Indigenous People’s Climate Justice Forum; Co-Founder, Smily Academy ;National Coordinator for Biodiversity, The Climate Reality Project India; Member, IUCN Wilderness Specialist Group; Commission Member – IUCN WCPA Climate Change, IUCN WCPA Connectivity Conservation, IUCN WCPA Indigenous People and Protected Areas Specialist Groups, IUCN WCPA South Asia Region and IUCN WCPA-SSC Invasive Alien Species Task Force; Member, International Antarctic Expedition 2013; Climate Force Arctic 2019 ; Ambassador, Marine Arctic Peace Sanctuary. Rituraj Phukan is the Climate Editor, Mahabahu.

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