Demand From AI and Crypto Firms Are Straining the Country’s Electric Grids

It’s not just new buildings like One Vanderbilt that are getting into the act. At 11 Madison, an Art Deco tower completed in 1932 and also owned by SL Green, the building runs on a thermal battery cooling system that utilizes 500,000 pounds of ice, according to a writeup by Trane, a manufacturer of commercial and residential heating, ventilation and air-conditioning systems.

These are among many things being done to reduce the energy footprint that commercial buildings impose on the environment. If investors and building managers are not already obsessed with reducing their buildings’ power consumption, they should be. 

The twin rises of artificial intelligence — especially the generative sort that mimics human reasoning — and cryptocurrency are expected to strain the electrical grid’s capacity to provide large amounts of power. Throw in the proliferation of data centers, and the strain becomes especially acute.  

Here’s where things stand now. According to the U.S. Department of Energy, the commercial sector consumed 17 billion kilowatt hours of electricity in 2023. That’s more than twice the amount it consumed in 2000 (8 million). And, if nothing is done, it could go higher.

“Buildings need to be smarter,” said Marta Schantz, co-executive director of the Randall Lewis Center for Sustainability in Real Estate at the Urban Land Institute, an organization of real estate and land use experts that boasts a membership of 48,000 professionals.

In a report titled “Get Smart: The Business Case for Grid-Interactive Efficient Buildings,” the Washington, D.C.-based organization found that 39 percent of global emissions can be traced to buildings, and that trillions of dollars of real estate assets are at risk due to climate hazards. It urges that buildings either be constructed anew or retrofitted to be more energy efficient.

According to ULI’s report, owner and developer Brookfield (BN) Properties is using “digital twins” of buildings — including its 1 Manhattan West skyscraper, which it described as a virtual model of a real building — to among other things measure potential savings from energy conservation practices. Also, the report said that fellow owner and developer Tishman Speyer was using on-site battery storage to respond to energy demand at New York’s Rockefeller Center.

The gradual takeover of commercial buildings by computers, and the advent of data centers — facilities filled with servers and other equipment like routers that the data storage system needs to maintain itself, and often housed in old industrial buildings retrofitted to accommodate such equipment — have created what Schantz called a “skyrocketing” need for juice. At the same time, she said, the same computer technology is helping ever more sophisticated real estate professionals find ways to reduce their energy consumption, resulting in a race between rising demand and rising knowledge on the building side.

But the need might now be even more pressing. Rene Haas, CEO of chip design company Arm Holdings, told the Wall Street Journal earlier this month that artificial intelligence models now proliferating throughout the business world are “just insatiable in their thirst” for electricity.

“The more they gather to get smarter, the more power it takes,” Haas said.

The rise in energy demand is coming at the same time as regulations like New York City’s Local Law 97 compel owners of commercial buildings to take steps to substantially reduce their properties’ carbon footprint are going into effect. According to the city, about two-thirds of its greenhouse gas emissions are from buildings. The law, passed in 2019, requires that all large buildings, even those built to the green standards of their time, reduce their carbon output by 40 percent by 2030 and achieve net zero by 2050. 

And there are laws such as these around the country, enacted in a wave before the ramp-up in AI and cryptocurrency firms.

“We are seeing some significant upticks in building performance regulation across the country,” said Stephanie Greene, who leads sustainability solutions in the Americas for CBRE (CBRE), working with both investors and users in their efforts to decarbonize. “Local Law 97 is an example. There’s an ordinance called Energize Denver — a lot of cities in California, Boston.”

A map from CBRE, in fact, shows that building performance standards have been enacted in the Boston area, the Washington, D.C., area, New York City, St. Louis, Denver, Seattle and Chula Vista, Calif.

For a lot of users, whether they be buildings or vehicles or anything else that needs power, the burden of making them go is being switched from fossil fuels like gasoline and fuel oil to electricity. And there’s pressure on generators of electricity, such as utilities like Con Edison or Pacific Gas & Electric, to switch to renewable power sources from such fuels.

“When you look at what is required to be a net-zero economy by 2050, what that means is that a lot of things need to be electrified,” Greene said. “So end users of gasoline, or natural gas or propane or fuel oil in buildings, those things need to become electrified. And then the power that provides those things needs to be greenhouse gas-free power.” 

Greene cited solar energy as one emissions-free power source. She could have also mentioned wind turbines or hydroelectric dams, which use the flow of water to produce electricity. 

“Global electrical generation capacity has to triple by 2050,” Greene said. 

One company focused on energy efficiency, and companies and technologies that help real estate owners and property managers achieve it, is Fifth Wall, a venture capital provider focused on technology for the real estate industry. Heather McGeory is its head of sustainability.

“Overall we have been moving toward the electrification of everything,” McGeory said. “This has put a lot of pressure on our energy system to meet increasing power demand in real estate. When you think about what our lives are like now, we might have cars that we plug in; we’re asking for heat pumps for heating and cooling, which are electricity-based rather than oil heat or natural gas. It puts a lot of pressure not only on the buildings themselves, but on the landlords and the whole electricity grid.”

The pressure did ease a bit, and most pressure now is on the cost side. 

“We’ve seen consumption in a lot of commercial buildings actually decline because of COVID, due to changing workplace policies and efficiency,” said Chris Thomas, global leader of utility costs and data management solutions for CBRE. “And a lot of that data center load is being moved to other centralized locations, like off-site data centers. It’s a price impact, but not as much a building consumption problem.”

“Utilities have to make a bunch of infrastructure upgrades, to support all this new growth on their network,” Thomas said. “And that cost is passed through.”

Whether all this is going to get worse before it gets better and whether there is enough potential for renewables to satisfy growing electricity demand remains an open question, he said.

“We’re not seeing as much renewable capacity as we’d like,” Thomas said. “It’s still difficult to get connected to utilities, you have high interest rates for developers, and you still have some supply chain issues. There’s some short-term pain. Investors are not able to find what they are asking for.”