Microsoft’s AI land grab becomes costly power game
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to add topic code.
By Yawen Chen
LONDON, May 1 (Reuters Breakingviews) -Satya Nadella’s artificial intelligence land grab has extended into energy. Microsoft’s MSFT.O chief executive has invested heavily in AI models and the chips required to run them. Now the $2.9 trillion software giant is making a big commitment to buy renewable energy for its data centres, enabling Brookfield Asset Management BAM.TO to build a massive 10.5 gigawatts of capacity. These projects, which the Canadian investor expects to deliver between 2026 to 2030, will lock in over a decade of electricity supply for Microsoft. It’s another long-term bet on a still nascent technology.
The scale of the projects shows how much power self-teaching computers are going to need. All the data centres around the world last year consumed 7GW, according to Cushman & Wakefield. Assume Microsoft signs power-purchase agreements lasting 15 years, per the industry norm, and pays the typical average price of $50 per megawatt-hour for electricity generated by solar farms. Its total bill could reach nearly $70 billion, Breakingviews calculates. The true outlay will certainly be lower, as renewable power plants do not operate at full capacity around the clock, and Microsoft will have driven a hard bargain for such a large deal.
Nevertheless, it’s clear that access to power is the latest battleground for tech giants eager to dominate AI. Microsoft has invested heavily in startups like OpenAI, inventor of the ChatGPT chatbot, is rolling out tools like Copilot, and expects to be one of the first companies to adopt chip designer Nvidia’s NVDA.O most advanced semiconductors. Analysts at Melius Research expect its capital expenditure to exceed $60 billion in the year to June 2025, a 40% year-on-year increase.
Training and deploying these AI models will require more powerful data centres which demand greater quantities of electricity: A ChatGPT inquiry consumes about 10 times as much power as a Google search, per Goldman Sachs analysts. Locking up renewable power today could give Microsoft an edge over rivals like Google owner Alphabet GOOGL.O, Meta Platforms META.O and Amazon.com AMZN.O in the future.
It’s a happy deal for Brookfield, which had already pencilled in building 5 to 7 GW of new renewable energy projects every year until 2030, and expects to earn an internal rate of return of 12% to 15% on these projects. For Nadella, the fear of missing out appears to be greater than the risk of playing the wrong game.
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CONTEXT NEWS
Microsoft and Brookfield Asset Management said on May 1 they had signed a global renewable energy framework agreement, whereby the Canadian investor will deliver over 10.5 gigawatts of new renewable energy capacity between 2026 and 2030 to provide the U.S. software giant with access to electricity for its cloud services both at home and abroad.
The renewable projects will focus on wind and solar power as well as other carbon-free energy generation technologies, the companies said.
Graphic: Microsoft's AI drive has pushed up capex https://reut.rs/3JF9D3o
Editing by Peter Thal Larsen and Sharon Lam
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