As data center energy demands soar, exploring alternative solutions like microgrid infrastructure could offer resilience, cost savings, and sustainability

Cloud computing, government digitalization initiatives, increasing mobile and internet penetration, fast-growing populations, and the explosive growth of AI, are fueling an insatiable demand for data centers.

As the industry grows amid sustainability and urgent Net Zero concerns, the biggest constraint the data center industry faces is power. Gartner predicts power shortages will restrict 40% of AI data centers by 2027, and estimates that AI-optimized servers in data centers will need 500 terawatt-hours per year by 2027, which is 2.6 times what was consumed in 2023.

As countries scale up their data center capacities in response, many solutions are available, one of which is microgrids. These small-scale power systems, equipped with localized generation capabilities, operate outside the national grid. With the integration of energy management systems and renewable energy sources, microgrids have the potential to smooth data center power demand and even contribute to national energy security.

Regional energy infrastructure investments
Microgrids have long been used across the region to power remote communities without access to the national electricity grid. These small and independent grids may be fueled by conventional energy such as diesel generators or by renewables such as solar.

The key to a microgrid’s viability is an energy management system, which works alongside the microgrid’s storage capabilities to generate and store power based on user needs. They are often cost effective and reliable — important attributes for power supply systems in rural areas.

According to a 2019 World Bank report, there are more than 26,000 such grids installed globally. Of these, 16,200 are installed in East Asia, South Asia and the Pacific. Many are the result of rural electrification projects, but a small but growing number are part of national plans to improve national power infrastructure.

Singapore, through its Energy Market Authority (EMA), has commissioned an enhancement to its national energy management system and is exploring the introduction of a virtual power plant to support growing power demands from data centers and electric vehicles.

Other governments in the region are making similar moves, with the result that expenditure on microgrid implementation is predicted in some circles to grow at a compounded 18% per annum from 2023 to 2032 to reach US$55.3bn. Globally, the Asia Pacific region is expected to be the largest market for microgrid spending globally.

Strategic relevance

Microgrids have the potential to not only fuel power-hungry data centers but to also improve the resilience of national energy systems:

  • They can work alongside the main power grid or operate independently as needed, which means they could make up one part of the various distributed energy sources that could feed into a virtual power plant.
  • For large energy consumers such as data centers, privately managed microgrids equipped with battery energy storage systems and energy management systems can help reduce energy bills while also meeting the rising power demands of a nation’s digital economy.
  • The energy management system in a microgrid would ensure that its own power generation resources or its batteries are consumed when both grid demand and grid prices are high. When demand is low and prices are low, the system would consume power from the grid instead while simultaneously recharging its batteries.

Editor’s note: While microgrids offer significant advantages, the following notable challenges are added here for completeness:

  • High initial investments and the complexity of integrating microgrids with existing infrastructure may limit their widespread adoption, particularly in regions with limited space for renewable energy generation
  • Additionally, regulatory and policy uncertainties, along with potential limitations in energy storage capacities, could impact their operational effectiveness. Successful implementation requires specialized technology and expertise, and long-term savings may offset upfront costs, but this depends on the specific energy needs of the data center
  • Nevertheless, microgrids remain a promising solution among alternatives, especially for data center businesses looking to optimize energy use and contribute to national energy security and sustainability goals