Fink warns data center construction halt could trigger recession as power demand seen reaching 11.8%
Key Facts
Larry Fink, chief executive of BlackRock, warned that a blanket halt to data center construction in the United States could push the economy into recession, CNBC-e reported. Fink's warning concerns the possibility of a blanket construction moratorium, linking the recession risk he cited to disruption of the building of these facilities. In its assessment of the expansion of artificial intelligence infrastructure, the BlackRock Investment Institute identified potential constraints including "power, politics and financing." Fink previously said data centers would gravitate toward regions with cheaper electricity, according to an earlier Reuters report from Rome. Regions with higher electricity costs may need government subsidies to attract these centers, he added, according to the same report.
The U.S. administration is adopting a framework to supply power to data centers through the Ratepayer Protection Pledge, which allows companies to build new generation resources, provide them or purchase electricity from them, according to the White House. The official document describes the options for securing supplies as "building, providing or purchasing new generation resources," allowing companies to choose among these routes. The pledge includes companies bearing the costs of electricity and infrastructure dedicated to them under arrangements to meet data centers' needs. Those payments remain due "whether or not they use the electricity," according to the wording of the White House statement on the pledge. As for new, separate rate structures, the pledge's official page says companies negotiate them voluntarily with utilities and state governments.
In July, the White House announced an expansion of the pledge with more than 200 additional participants, including utilities, data center developers, cooperatives and states. The expansion thus included entities developing data centers and others operating in the utility sector, alongside cooperatives and state governments joining the pledge. On infrastructure project delivery, BlackRock, the AI Infrastructure Partnership and North America's Building Trades Unions announced a workforce collaboration. The collaboration includes expanding the use of apprenticeship programs and strengthening workers' preparation for these projects, according to BlackRock's announcement. It also includes developing further recruitment initiatives to supply workers for the infrastructure projects targeted by the collaboration between the company, the partnership and the unions.
On financing, the BlackRock Investment Institute sees the expansion as requiring a bridge across the time gap between money spent building projects and the revenue they generate later. The institute described this mismatch in the timing of cash flows as "upfront investment and revenues later," in its commentary on the expansion's financing needs. The AI Infrastructure Partnership says its potential investment capacity could reach $100 billion including debt financing, according to BlackRock's announcement. That potential total includes funds that could be raised through borrowing as part of the investment capacity the partnership aims to achieve. The partnership presents the amount as a potential investment target, with reaching it dependent on including debt financing among its resources.
The energy needs of these projects follow an increase in U.S. data centers' electricity consumption from 58 terawatt-hours in 2014 to about 176 terawatt-hours in 2023, according to an earlier U.S. Department of Energy report. The department thus compares the electricity used by the sector in the two periods, with consumption reaching the higher level in the more recent period. In commentary published in April, the BlackRock Investment Institute discussed behind-the-meter power generation solutions among the ways to supply new U.S. data centers with energy. These solutions operate without a grid connection, according to the institute, supplying electricity to centers that rely on them outside grid supplies. The institute expects these solutions to power about 25–30% of new U.S. data centers in the coming years.
Looking ahead to 2030, the reference scenario in Lawrence Berkeley Laboratory's updated report projects that data centers will account for 11.8% of total U.S. electricity consumption. That projected share relates to the country's total electricity consumption, according to the report update published by the U.S. Department of Energy. The update also sets out a combined uncertainty range for the share data centers could reach by that date. The range starts at 9.5% of total U.S. electricity consumption, while its upper bound reaches 15.3%, according to the laboratory. The laboratory's estimates of electricity demand from data centers thus extend through 2030, with a reference scenario and an uncertainty range around their projected share.