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Big Tech's AI bets are driving a nuclear renaissance. Not everyone is buying the hype.

30 December 2024 at 00:30
Nuclear
Big Tech has tapped clean energy sources to power the AI boom, which has invigorated interest in the nuclear sector.

RelaxFoto.de/Getty Images

  • Big Tech is investing in nuclear power to meet AI data center energy demands.
  • Nuclear is seen as a clean energy source, but investors are skeptical about scalability and returns.
  • While VC interest in nuclear startups is growing, startups face key bottlenecks.

The generative AI boom has made nuclear power a major new obsession for Big Tech. Some industry watchers aren't fully convinced that it should be β€” or that nuclear startups will be able to capitalize on the hype.

This year, companies at the forefront of AI development have been in a frenzy over nuclear power as they've searched for clean sources of electricity to run the energy-hungry data centers being built to serve their prized AI models.

Microsoft made a stunning move in September as it struck a 20-year power purchase agreement with Constellation Energy to awaken one of two dormant nuclear plants on Three Mile Island β€” the site of one of the most high-profile nuclear accidents in US history.

In October, Amazon took a stake in X-energy, a developer of small modular reactors (SMRs) that promise greater efficiency than large nuclear reactors. That same month, Google announced a clean energy agreement with Kairos Power, a company developing SMRs.

These deals have emerged at speed for a simple reason. An arms race in the tech sector between companies vying for control of the most powerful AI models is set to drive data center power demand through the roof, with Goldman Sachs estimating a 160% jump by 2030.

However, while Big Tech's ambitions to build the world's most potent AI models have invigorated their interest in nuclear power, investors, energy experts, and analysts are feeling split about whether it will help startups scale at pace and deliver fruitful returns.

Why nuclear might not be a quick-fix solution

One issue that skeptics point to is that nuclear reactors won't come online quickly enough or with the scale needed to meet the demands of energy-hungry data centers.

Jill McArdle, a campaigner at European nonprofit Beyond Fossil Fuels, told Business Insider that nuclear power is "completely off topic" as a current solution for powering data centers, particularly if tech companies are serious about the looming deadlines they've set to meet emissions targets.

Google aims to achieve net-zero emissions across all of its operations by 2030. Microsoft, meanwhile, has committed to being carbon-negative by 2030. "What we are talking about, especially now, is the next five years of how are we going to power this massive boom in data centers," McArdle said.

She added that more compact SMRs adopted by Big Tech also remain largely untested. Google's corporate agreement with Kairos Power, for instance, is expected to see the startup's first SMR come online by 2030, with others being added through to 2035.

One concern around large nuclear solutions is expense, with the likes of Microsoft's Three Mile Island deal unlikely to be replicated elsewhere. As McArdle put it: "Traditional nuclear just isn't going to be coming online at the scale and in the budget that we need to get it done."

three mile island
Three Mile Island is a nuclear power plant that Microsoft has signed a deal to revive.

Wally McNamee/Corbis via Getty Images

Venture capitalists have echoed this concern.

"The length of the investment is not compatible with private equity funds β€” maybe it's one for evergreen funds," said Guillaume Sarlat, partner at France-headquartered VC firm Axeleo Capital, which has deliberately excluded nuclear from its investment policy. "The other problem is, what are the economic conditions going to be when nuclear startups are ready to sell their product? What is going to be the cost of the electricity that they're going to produce in 20 years?"

He speculated that funds backing nuclear could aim for an internal rate of return of 15%, but the two main parameters that determine this would be productivity gains and the competitiveness of the nuclear solution. These factors could be affected by the price of gas and photovoltaic materials, making it a risky bet, he said.

Startups face key bottlenecks

On the technical side, nuclear startups will have to work hard to differentiate against existing fission technologies and "persuade investors that that marginal improvement is worth waiting another 10 years," said Matthew Blain, principal at climate tech fund Voyager Ventures.

While Blain noted an aligned "excitement" for nuclear fusion technology, he added that these startups would first need to demonstrate a believable pathway down the cost curve. "Your first dollars per megawatt of your first fusion plant will be astronomically expensive, and that will be competing on a 20 to 30-year timeframe with the cost of energy and battery storage," he told BI.

It's part of the reason investment in nuclear energy startups has fluctuated over the past five years. The industry had a banner year in 2021, with startups raking in $3.57 billion in VC funding, per PitchBook data. Figures subsequently dipped in 2022 and 2023, with VCs pouring $2.67 billion and $1.17 billion into startups, respectively.

"Nuclear energy requires a centralized infrastructure that is harder to scale incrementally," said Nicolas HeuzΓ©, cofounder and CEO of osmotic energy startup Sweetch Energy. "And investors and governments often favor proven solutions, even though they are not perfect, over novel ones associated with emerging technology."

The case for being bullish on nuclear

Despite the concerns, certain quarters of the tech sector remain convinced that nuclear is the way forward to support the AI data center boom.

A16z, the venture capital firm led by Marc Andreessen and Ben Horowitz, named "the resurgence of nuclear" as one of its big ideas for driving its "American dynamism" investment theme in 2025.

"A perfect storm of regulatory reform, public enthusiasm, capital infusions, and insatiable energy needs β€” particularly from AI data centers β€” will accelerate orders for new reactors for the first time in decades," is how David Ulevitch, a general partner at A16z, put it.

An image of X Energy's XE-100 nuclear reactors
X Energy's XE-100 nuclear reactor plants.

X Energy

A few things still need to be figured out. Blain notes that VCs will need to see if there is profit to be made on a technology that may offer "more of an infrastructure return" typically made through debt investments than the kind of outsized return a VC typically seeks from a bet on a software business. Nuclear startups may also opt to "take the trajectory of companies like SpaceX by staying private for a long period of time," he said.

That said, it's clear that money is flowing into the industry again, as VCs have deployed $2.62 billion into nuclear startups this year. Notable raises included X Energy's $500 million round and the $151 million raised by Paris-headquartered Newcleo, which is building SMRs using repurposed radioactive waste.

Newcleo's COO, Elisabeth Rizzotti, told BI that a Big Tech-fueled boom in demand for clean energy had made it an "attractive" option for investors. She added that the startup was potentially eyeing an IPO once it met two key milestones: building its first prototype in 2026 and getting pre-authorization to build its first reactor in France by early 2027.

Companies trying to sell the world on nuclear power will have to accept a hard reality, however: the clock's ticking on their opportunity to prove their solutions can meet the extraordinary energy demands of the AI industry. The data centers will keep on coming.

Read the original article on Business Insider

Amazon commits another $10 billion to Ohio data centers amid questions about energy costs and supply

17 December 2024 at 13:33
An Amazon data center under construction outside Columbus, Ohio
An Amazon data center under construction outside Columbus, Ohio, in 2015.

Kantele Franko/AP

  • Amazon will invest another $10 billion in Ohio data centers, Ohio Gov. Mike DeWine said.
  • The company will consider locations outside its power-strained hub in Columbus.
  • In exchange for tax credits, Amazon committed to more than 1,000 new jobs in its Ohio data centers.

Amazon has committed to spending $10 billion on the expansion of its Ohio data center operations, in addition to the billions of dollars it has already said it plans to spend in the state, Ohio Gov. Mike DeWine said Monday.

The tech giant's new Ohio facilities, which should be completed by the end of 2030, will help power the push into AI by its cloud computing unit, Amazon Web Services.

Just last year, AWS said it would invest $7.8 billion to expand its data center hub in Columbus and the surrounding suburbs. The company started building data centers in the region in 2015 and has at least six different campuses that are either operational or under construction.

Ohio has committed to spending more than $23 billion on data centers in the state between the money it has already spent and its committed investments, a spokesperson for Ohio's Department of Development said.

The investment in Ohio is part of Amazon's aggressive spending plan on data center construction to support AI demand. Amazon CEO Andy Jassy said on the company's third-quarter earnings call in October that it plans to spend $75 billion on capital expenditures in 2024, most of which will go to cloud computing and data centers, and it expects to spend even more next year.

Local politicians have dubbed the Central Ohio "the Silicon Heartland." Gov. DeWine touted the AWS announcement this week as "strengthening the state's role as a major technology hub."

Most of Amazon's data centers are located in Northern Virginia, the largest data center market in the world. That area has become saturated with new facilities waiting to be connected to the electric grid. In the last 18 months, Amazon and its competitors have announced plans to build data centers in states nationwide. Just this year, Amazon announced plans to spend $11 billion on data centers in Indiana and $10 billion in Mississippi.

Job creation in Ohio

Ohio, which offers a generous slate of state and local tax incentives, including an up to 100% sales and use tax exemption for data center equipment, has seen a sharp uptick in development.

For this latest investment, the Ohio Tax Credit Authority approved additional job creation tax credits in AWS's existing economic development agreement with the state. In exchange for annual job creation tax credits, AWS has promised 1,058 "full-time equivalent" jobs with a minimum average annual payroll of $101.37 million, a spokesperson for Ohio's Department of Development told Business Insider.

Ohio law defines "full-time equivalent employees" as the result of a calculation, or "dividing the total number of hours for which employees were compensated for employment in the project by two thousand eighty." The employees must be directly employed by Amazon for the company to receive its tax credits, although there is no requirement for the kinds of jobs Amazon must offer.

When BI contacted AWS and asked what types of jobs would be available in its new Ohio data centers, an AWS spokesperson reiterated the information listed in Gov. DeWine's press release, which referred to the jobs as "new" and "well-paying."

Electricity demand rises

AWS's financial commitment to the state will hinge on whether local utilities can provide the amount of electricity the company eventually says it will need.

AEP Ohio, the Columbus utility that serves Amazon, said earlier this year that it received 30 gigawatts of service requests from data centers alone β€” an amount that would put the region's demand for electricity close to New York City's.

Much of that demand comes from the wealthy suburban enclave of New Albany, Ohio, where Meta, Microsoft, Google, and QTS are all constructing major data center projects. The site of Intel's future semiconductor chip plant is in neighboring Johnstown, Ohio. The New Albany Company, the real estate company founded by billionaire retail mogul Les Wexner, orchestrated many of the area's major land sales to tech companies, including Intel.

For its newest data centers, AWS will look to sites beyond the Columbus region, though no locations have been finalized, according to a statement from Gov. DeWine's office. If AWS locates a data center outside the Columbus region, it would likely be outside AEP's service territory.

AEP has asked Ohio's public utilities regulator to approve a tariff and a special rate class for data centers that would require the power-hungry facilities to pay for the majority of electricity they anticipate needing β€” even if they ultimately do not consume all of it.

The data center industry, including Amazon, is working to quash AEP's proposal. In a November testimony filed with the Public Utilities Commission of Ohio, Michael Fradette, who leads Amazon's energy strategy, called the proposal a "discriminatory structure" that "unfairly targets data center customers by targeting customers in specific industries."

The matter has sowed division among corporate interests in Ohio. Those who oppose the tariffs include the Ohio Manufacturers' Association Energy Group, a lobbying offshoot of the state's major manufacturing industry trade group, and the Ohio Energy Leadership Council, which is represented by David ProaΓ±o, a lawyer in BakerHostetler's Columbus office who also represents Amazon's data center business before the Public Utilities Commission of Ohio.

Meanwhile, Ohio Energy Group, which counts Cargill, Ford, GE, and Intel as members, has testified in favor of AEP's proposed data center tariffs. Walmart, a large customer of AEP in Ohio, has also come out supporting the tariff.

AEP is planning new transmission infrastructure projects to service data centers in the Columbus area, as well as the Intel chip plant. The future of the chip plant, which is supposed to bring 3,000 advanced manufacturing jobs to central Ohio, is uncertain as the company debates spinning off its struggling foundry business.

Rising energy demand from Columbus area data centers has triggered the need for new transmission infrastructure. Under AEP's existing rate structures, the costs of new transmission lines to data centers could be spread to other ratepayers.

Many of AEP's residential, commercial, and industrial customers saw transmission costs rise by $10 monthly in April, the fourth rate increase approved for the utility in three years. Next year, average bill totals will increase another $1.50 a month to support grid reliability, the utility said.

Do you have insight, information, or a tip to share with this reporter? Contact Ellen Thomas via the secure messaging app Signal at +1-929-524-6964.

Read the original article on Business Insider

Exclusive: Read the 9-page memo hyperscaler startup Nscale used to raise a $155 million Series A

8 December 2024 at 23:00
Josh Payne, founder and CEO of Nscale
Josh Payne, founder and CEO of Nscale.

Nscale

  • Nscale has raised $155 million in Series A funding for its hyperscaler platform.
  • The startup offers everything from access to data centers to GPU infrastructure.
  • BI got an exclusive look at the pitch memo the startup used to secure the fresh funds.

Nscale, a London-based startup providing companies with access to data centers and clusters of AI chips, has raised $155 million in fresh funding.

The startup, which came out of stealth in May 2024, bills itself as a fully integrated AI infrastructure platform.

As a hyperscaler, Nscale provides the "full stack" of technologies companies need to train and run AI applications like large language models. That includes data centers, software, and graphics processing units, Nscale's founder and CEO Joshua Payne told Business Insider in an interview.

The startup differentiates itself from AI cloud providers, such as Lambda Labs and Coreweave, which offer only specific components, such as GPUs, in the AI infrastructure layer. By providing everything from its own data centers to virtualized GPU nodes, Payne said that the company could leverage better unit economics than its competitors.

"The problem for the industry is chicken and egg. Take an LLM customer β€” they may want 10,000 GPUs, but they don't have the expertise for that," he told BI. "Many of our competitors don't own their own data centers, so they have to license them. In our case, we have all of that in-house. Given that we are able to own all those segments in the value chain, we're faster and cheaper."

Payne said that Nscale pivoted to focus on AI infrastructure across the full stack after the public release of ChatGPT-3. "So our thesis was, if this is indeed the fourth industrial revolution as people are claiming, then how would you build a resilient AI cloud that would survive commodity cycles? said Payne. "We found the best way to do that was to vertically integrate it, building both data centers, GPUs, and software."

Since it emerged from stealth, it has rapidly grown its pipeline of greenfield data center capacity across Europe and the US from 300 megawatts to 1.3 gigawatts.

The startup makes its money by building data centers, purchasing GPUs, and deploying AI cloud services, which it then leases on an hourly basis. Clients can sign contracts for any given period of time to use the services.

Sandton Capital Partners led the $155 million round, which also included participation from Kestrel, Bluesky Asset Management, and Florence Capital. The startup previously raised more than $30 million in pre-seed and seed funding, with the size of those early-stage rounds reflecting investors' heightened appetite to back startups operating in the AI infrastructure layer.

With the fresh funding, Nscale plans to invest in large clusters of GPUs and also double down on software development for its public cloud platform, which will be released in January 2025.

BI got an exclusive look at the 9-slide memo the startup used to secure fresh funding.

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Read the original article on Business Insider

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