The Asia-Pacific (APAC) region will likely be the fastest-growing market for data centres over the
next five years, according to Moody’s. The credit ratings agency forecasts that APAC data centre
capacity will grow at a compound annual average rate of almost 20% through 2028, involving an
investment of about USD 564 billion. And while China is the biggest data centre market in APAC,
tensions with the US will continue driving additional capacity to other economies in the region like
Sydney.
Last month, Singaporean real estate investment and management firm CapitaLand (CLI) said the
data centre sector has such strong tailwinds, 97 percent of institutional investors it surveyed are
planning to increase capital allocation to this sector and much of this will be in APAC. Moody’s
points out that outside China, Japan, Australia and India are driving this demand.
While cloud computing has been the primary driver for DC demand, the rise of artificial intelligence (AI) is now fuelling a more explosive growth. On population per MW basis, APAC markets are underserved compared to regions such as EMEA and North America, according to CapitaLand [1]. APAC economies are not only growing faster, the region’s enormous population and swelling internet user base also cement its status as a highly attractive destination for DC investment. Its internet user base has grown seven-fold since 2005, compared to the growth of 1.9 times in the Americas and 1.8 times in Europe over the same period.
DC transactions in APAC rose about 2.4 times to approximately USD 22 billion from 2019 to 2023,
compared to the preceding five years, even as markets generally stagnated during the Covid-19
pandemic. Moody’s says telcos and real estate companies are best positioned to tap into data
centre growth in APAC, in addition to the hyperscalers that build and lease the largest share of
capacity. But data centres’ energy-intensive nature exposes participants to carbon transition risks in a region where fossil fuels remain the dominant fuel source.
Can Sydney’s power keep up with DC demand?
Cushman & Wakefield’s data centre advisory team lead Alex Moffatt recently told the
Property Council [2] that in terms of scale of the next phase of data centres being proposed for
Australia, new facilities are 300MW whereas only a few years ago, 30MW was common. While
striking, he added that live capacity for the entire Australian market is approximately 1.2GW, that is
the same capacity as some of the new proposed data centres in the USA for one single data
centre. If you apply this to Australia, he said, where there is a requirement of 300MW, this
becomes difficult to source in the existing grid in Sydney, certainly inner Sydney.
Moffatt told the Property Council that this is leading Western Sydney to be the main growth corridor for data centres in the city now and operators and hyperscalers also turn to Melbourne to build capacity, where he said there was significant electricity capacity in the hundreds of megawatts. He said the cramping has led some to search further out into areas like Wollongong, Newcastle and the Hunter Valley.
But even Western Sydney has constraints. In a recent government submission, Endeavour Energy
which supplies Western Sydney, stated that it served 0.6 GW of data centres from 16 different
customers, had 19 applications totalling 2.6 GW, and had 18 additional enquiries representing a
further 2.7 GW of connected load during 2023. If realised, Endeavour expects data centres alone
to reach a peak demand of 5.9 GW, representing over 250% of its existing network demand.
Regardless, Moffatt reiterated that Sydney is forecast to remain the powerhouse market for
Australia reaching 2GW by 2030. To do it, the DC market will also need to meet comparatively
stringent building guidelines. Data centres in Australia need to obtain at least a 5-star rating from the National Australian Built Environment Rating System (NABERS), which uses a scale from 1 to
6, with 6 representing market leaders in building efficiency across energy, water, waste and the
indoor environment.
Moody’s estimates that data centre capacity growth will consume enough power to require about
5,300 MW of new power supply across APAC. They go on to say that incremental growth in power
demand may be met to varying degrees by existing generation sources, especially in areas with
renewable energy sources, when weather conditions are favourable. For example, the Australian
Energy Market Operator (AEMO) has identified that growing amounts of rooftop solar generation
can provide energy surpluses during certain periods.
As a result the expectation is that data centre developers and tenants in Sydney will continue to
sign long-term corporate power purchase agreements (PPAs) for the supply of renewable power
with utilities to curb their exposure to carbon transition risk.
Solving the power conundrum
Data centres typically have stable, predictable load patterns and operate continuously 24 hours a
day, 365 days a year. They also tend to ramp up their operations far quicker than other large
energy users and have intense energy consumption needs, consuming 10-50 times the energy per floor space of a typical commercial office building. Moody’s points out that however that depending on the circumstances, some data centres could provide significant load relief where they can offer system support to the extent they have their own captive underutilised backup supply.
“Regulated networks should be able to include spending on augmenting their network capacity in
their regulatory asset bases, to the extent they operate under building block regulatory frameworks, such as in Australia and Singapore, and the regulator considers the expenditure to be prudent and efficient,” concluded the report. “The networks are then able to generate a return on the investment, as well as claim regulatory depreciation allowance on the additional asset base, which is included in the tariffs they charge their customers. This would support long-term revenue.”
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[Author: Simon Dux]