Quantum opportunities are there – in the mid and long term
Enthusiasm for quantum technology in telecoms and digital infrastructure tends to fluctuate – see the sharp falls in quantum firm valuations following one interview with Nvidia’s CEO in January.
A Datacloud USA keynote panel on quantum computing set out to bring some nuance and context to the debate. Quantum computing, the panelists concluded, is not going to replace classical computing or GPUs any time soon – but the technology definitely has potential to complement existing infrastructure to solve tricky problems in a power-efficient way.
As Infleqtion’s CTO Pranav Gokhale put it; “In the future, I think that quantum will act as a co-processor alongside GPU that enables the two together to solve problems that individually, neither would be able to do, but together they can unlock new markets and new applications.’
New sources of financing are needed
Data centres are hoovering up huge amounts of capital – and the message from a keynote panel on data centre financing was that existing sources of finance are struggling to meet demand.
The massive scale of financing is pushing traditional lenders, such as commercial banks and institutional investors like pension funds, to the limit. This has opened a space for alternative funding sources like private credit and asset-backed securities to plug the gaps, the latter providing $50bn of funding to data centre developments.
One insight from the panel was that different projects are more suited to different funding sources. For example, asset-backed securities and bank lending are more suited to projects with leases already secured, whereas private credit is a more likely source for speculative, early-stage ventures, like data centre developments that do not have tenants yet.
With McKinsey forecasting data centre development to need over $6 trillion in just five years’ time, expect to see a wider range of financial mechanisms pay for this development.
‘Neo clouds’ are causing underwriting headaches
Lending money for a project is not the only stage of the financing process – somebody has to underwrite the risk, too.
In the data centre financing world this is fairly straightforward for tenanted projects for clients with high credit rating, such as Meta or Amazon. But the data centre gold rush means that ‘neo clouds’ – companies with hyperscale requirements but without hyperscale heritage – require money at a scale that isn’t usually provided to companies of their credit rating and history.
A solution, according to Datacloud panelists, will not come overnight. “Neo clouds have insatiable demand but lower credit quality. The financing markets are still trying to figure out how to underwrite them,” said Houlihan Lokey’s Brian Pryor, while Felix Zhang from Ares added “This will be the last financing product to develop.”
Public opinion on data centres needs careful management
Data centres have helped turn the state of Virginia into an economic powerhouse – there are more data centres in the state than in most countries.
But the undoubted economic benefits of becoming the world’s data centre capital has not meant its residents are happy. The sheer scale of development, we learned during a round table on Virginia’s DC market, means that new infrastructure, particularly power infrastructure, must now encroach on residential areas in a way that wasn’t the case before.
This has led to local opposition, which is now being picked up at local government level at times – meaning a problem for the state’s data centre operators. The roundtable’s participants concluded that the answer lies in pushing the message that data centres are critical national infrastructure – a PR tactic being followed by various data centre associations around the world.
A deluge of Texan data centres…
Over to the Lone Star state, and a Texas-focused roundtable highlighted a different problem – too many proposed projects.
With the Texan tax regime is forgiving for data centre development, many developers are coming to the state and proposing projects, and the deluge of designs and proposals is putting serious strain on the state’s regulatory authorities and agencies.
While demand for facilities in Texas is a good thing, participants called for more effective communication between stakeholder groups, with one citing the example of Seattle and its monthly working group to coordinate utilities demand.
… is causing shifts in power trends
Alongside fibre connections and regulatory approval, all the new projects coming to Texas need one thing above all else – sufficient power.
In one sense, Texas is a good location for this. Not only is the state is both a fossil fuel and renewable powerhouse, it runs its own grid (ERCOT) that is independent of the wider U.S. system. This means transmission line construction times are some of the quickest in the country.
But even this favourable setup cannot cope with the sheer number of data centres wanting to take power – an issue exacerbated by the fact that companies looking for new power lines must prove the need for energy and demand before getting them, a process that can take five years or more.
This is not quick enough for data centre builds. As a result, developers are turning to standalone power sources – especially natural gas and nuclear. The Datacloud audience heard a case study given on stage of a partnership between Oklo and Liberty Gas to develop a two-phase standalone power solution – a data centre powered with natural gas for the first few years, with a phased transition to nuclear power once the technology and certification is ready.
Is fibre being overlooked?
DCByte’s Colby Cox thinks so. “The scale and quest for power and land has pushed fibre to the side. 105GW has been added to the US market in the last 18 months. Have we overlooked the fibre like we overlooked the utility grids for decades?”
The data centre market is currently seeing the result of not paying enough attention to power, and panelists are keen that the industry does not make the same mistake twice. Although fibre buildout in the U.S. is moving at a fast clip, it is not keeping pace with data centre construction, and with each centre ideally requiring 3 or 4 diverse fibre routes, there is headroom for the fibre market to try to match the pace of its data centre counterpart.
Capacity Media
