This is an excerpt from 'The Future of ESGTech 2024' report.
Our global economy has been “driven and shaped by oil, gas, and coal” for over 100 years. Fossil fuels powered the industrial revolution and formed the global financial ecosystem into what it is, but this has to change.
Over 80% of the world's energy consumption comes from fossil fuels, which is having dire consequences for our planet. We have already seen this in 2023 where we have had the hottest.
Michael Sheren, president of MVGX said: “The global economy is driven and shaped by oil, gas, and coal. We have seen how susceptible the world is when conflicts disrupt its supply, causing domino socioeconomic effects across nations.”
Sheren further argued that these effects are why “the delivery of clean and affordable energy is not a one-man show, but a collective global effort across borders. It is only possible when we shift our focus away from the oil and gas industry and set policies
that can engender effective change.” A point which is becoming increasingly important as we look to what options exist for green energy and how new innovations can improve those chances.
In the financial sector, data centres consume some of the highest levels of energy. It is estimated that the global data centre electricity consumption in 2022 was 240-340 TWh1, or around 1-1.3% of global final electricity demand, according to the International
Energy Agency.
Many data centres are already aiming to use renewable energy sources. Google Cloud, AWS, and Microsoft Azure have all pledged to move to 100% renewable energy between 2025 and 2030. So what renewable options are available to us? What do those options cost
for financial services and consumers? How can governments encourage renewable uptake? And what other options do data centres have to lower their impact? The following chapter will look into how data centres can make themselves more efficient beyond renewable
energy sources.
Green and renewable energy options
There are a range of green energy options or “greener” energy options which many of us are familiar with, such as solar or wind, however, there are other options out there being developed.
Rory Clune, partner, McKinsey & Company explained that “wind and solar, of course, but also sources like nuclear and hydropower that have been established at scale for decades. And then there’s a host of newer innovations including low-carbon hydrogen as
an energy carrier, carbon capture paired with existing fossil fuel generation, or newer generations of nuclear technology. Many of these forms of energy are cost-competitive with traditional energy sources in a given market.”
While many of these options are under development they can be very costly to set up, and there are many more steps to be taken before they are working at the same level as fossil fuels.
S&P Global currently forecasts that there needs to be a “$700 billion per year of renewable energy investment through 2050, which means that the annual funding gap to meet the net-zero modelled target could be as large as $700 billion. The global renewable
energy funding gap is also highly concentrated in emerging markets due to higher risk, and hence, lower appetite from investors.”
However, Laimonas Noreika, CEO and co-founder of HeavyFinance stated: “The cost of generating clean energy has decreased significantly in recent years, thanks to advancements in technology and economies of scale.”
Clune also argued that there are costs beyond the upfront technology, he said that “integrating them at scale to our energy systems is a highly complex system problem involving unprecedented expansions of supply chains and scale-up of permitting, supporting
grid infrastructure, and construction capacity.”
There is evidence of significant investment into green energy technologies, as seen in the diagrams, but as pressures mount for this process speed up we may see further investment.
Despite these costs, there are plenty of arguments that these investments are worth the money. Apart from the main argument, which is the survival of our planet, there are those who have argued that in the long term this will cost less. A study by Oxford
University researchers found that decarbonising our energy system globally by 2050 would save the world at least $12 trillion. Meaning that this upfront cost may be ultimately more affordable as well as sustainable.
Further to this, governments can produce a number of incentives to encourage the further development of green energy. Noreika argued that to make clean energy “even more affordable for citizens, innovative finance mechanisms and government incentives are
essential. Governments can offer tax credits, subsidies, and low-interest loans to promote renewable energy adoption. Innovative financing models like community solar projects allow citizens to collectively invest in renewable energy, reducing individual costs.”
Sheren added to this point: “A key policy initiative enacted immediately by governments and international organisations like the World Bank can be a critical trigger to help eliminate all subsidies for the oil, gas, and coal industries and divert those funds
toward renewable energy and storage projects.”
Lowering data centre energy consumption
Data centres can make that transition to using renewable energy, but there are other ways to lower their overall demand for energy consumption.
Clune stated: “Data management certainly plays a meaningful role, especially on the demand side in helping to measure and manage how and when we consume energy in a way that benefits the overall system.”
Sheren said the financial sector needs to “shift our focus on ‘greening’ carbon-intensive sectors such as cloud storage and data centres that are mostly powered by coal and gas. Given that these critical infrastructures are pivotal to the digital age, migrating
power generation to renewable energy sources will be the lynchpin to creating a more sustainable tomorrow, with less reliance on major polluters.”
Cloud has in more recent times been looking to as the more energy efficient option, as Noreika argued: “Beyond this, new forms of data management, such as cloud computing, can also play a pivotal role. Cloud-based solutions enhance energy efficiency and
optimise energy consumption.”
However, the storage of cloud data still has a carbon footprint. It’s important that we are also working to make data centres, cloud or otherwise, more energy efficient. There are ways of retrofitting existing data centres to make them more efficient.
Cooling accounts for a large part of a data centre's energy consumption. Retrofitting existing cooling systems or changing to more efficient cooling systems can have a huge impact on improving this demand.
A study published earlier this year by academics from Selcuk University and Concordia University conducted a case study on a data centre in Turkey which showed some innovative ways of doing this. They used a free cooling system combined with a PV generator,
which has the lowest payback period of 6 years at a minimum initial retrofit cost and an 83% reduction in cooling demand.
Noreika concluded: “Accelerating clean and affordable energy delivery requires a combination of renewable energy sources, innovative finance mechanisms, government incentives, and advanced data management. Collaboration among governments, industries, and
citizens is crucial to driving this transformative change towards a sustainable energy future.