In the summer of 1969, the United States Apollo 11 spaceflight landed on the moon guided by a computer with about 70 kilobytes of memory, drawing less power than a lightbulb. According to American Scientist magazine, the Apollo Guidance Computer could execute about 40,000 instructions per second. Today a laptop might do 10 billion[1]. How is all this data powered, protected, and stored? We consider the rise of data consumption, data centers as a nascent asset class, and the growing cloud of carbon.
How many photos of your loved one, child, or pet do you have on your smart phone and in the cloud? How many documents did you save on your laptop this week? How many searches for an office location or information to settle a minor controversy over a sports score?
Human beings are consuming and saving data at a rapid, some may say alarming, rate. Add in the increased electricity consumption of artificial intelligence (AI), and the demand for data storage and processing power has never been greater. Consider every mobile device, laptop, photo, email, document, ring doorbell, app, video, cookie, web search, and countless other types of data across the increasing global population.
All this accumulated data is driving a global need for more and more data centers to be planned and built and existing centers to be modernized. Each data center project is incredibly complex from the beginning. First a large enough plot of land must be located, plans drawn, local authority planning and building permissions acquired, accessibility ensured, and the infrastructure such as water, electric, and gas provided for. Ultimately, a business case must be developed to form a view of potential costs and profit.
Once the land is purchased and approved, an army of resources is needed to build out the data center, requiring a large amount of capital expenditure and possibly external funding in the form of debt or loans. Once built, the data center moves into operational expenditure in which the site is managed, space leased out, contracts managed, and the site maintained. The site could generate receivables that could be used as a takeout via a securitisation. Alternatively the builder or owner can sell the data center and step away.
The importance of data centers is reflected in government actions
Recent legislation and government actions also reflect that the importance of data centers is rapidly increasing. In September 2024, the U.K. Government passed a motion that classifies data centers as Critical National Infrastructure (CNI), the first CNI designation since the Space and Defence sectors gained the status in 2015, putting data centers on an equal footing to water, energy, and emergency services systems.
The EU is similarly busy updating its own legislation. The Digital Operational Resilience Act (DORA), in force as of October 2024, requires financial institutions to follow stringent guidelines for safeguarding against Information and Communication Technology related incidents. Designed to strengthen the IT security of the financial sector, it includes measures for protection, detection, containment, recovery, and repair following incidents.
How will we power data centers?
The question of how to power data centers is a challenge to be considered from multiple standpoints, including environmental impact. The increase in data centers is expected to produce 2.5 billion metric tons of CO2-equivalent emissions globally through the end of the decade, which is likely to accelerate investments in decarbonization efforts, according to Morgan Stanley research[2].
One solution that has been proposed is a combination of renewable or clean energy like solar. Given the current global climate initiatives and particularly energy transition and how data centers are viewed as CNI, this is an issue that should be carefully thought through. Some of the hyperscalers, large cloud service providers such as Google, Microsoft, Meta and Amazon, are considering nuclear power. In fact, Google signed an agreement in October 2024 to build small nuclear reactors to generate the vast amounts of energy needed to power its AI data centers.[3]
The increased use of data centers and the rise of AI are intrinsically linked. A breakout year saw the size of the global AI market grow to $184 billion in 2024, a considerable rise of nearly $50 billion in comparison with 2023[4]. With companies increasingly set to integrate AI into their core functions, Statista estimates that the market will reach $826 billion by 2030―representing a nearly four-fold increase from today’s figures.
With the development of new sustainable energy sources potentially taking years to complete, this sharp and sudden rise will only increase short term carbon emissions, driving higher demand for carbon credits. These are effectively permission slips issued by national or international governmental organizations that can be purchased, in exchange allowing companies to generate one ton of CO2 emissions.
Carbon credits are considered a vital tool in the fight against climate change, serving as a market-based mechanism to help reduce greenhouse gases and promote the development of sustainable energy sources.
Will data centers become a new asset class?
With data centers requiring construction of a complex mixture of framework and structures, including reliable power sources, grid access, cooling facilities, and network latency, and with existing centers potentially requiring retrofitting, their development as a potential asset class represents a complex challenge.
Data analysis by Linklaters notes that data centers have already garnered the interest of investors because of their steady cash flows and risk-adjusted yields. In 2023, $36 billion was invested globally in data centers, the second-largest investment year in the past decade, with $22 billion already invested globally in just the first five months of 2024[5].
With 2024 proving the catalyst for the rise of AI technologies requiring access to data centers, and with around 40% of the market currently located in the United States, the rise of data centers as an asset class is expected to increase further.
How CSC’s expertise ensures your success
In 2024, CSC was privileged to support the first EMEA data center securitisation for Vantage Data Centers Jersey, a leading global provider of hyperscale data center campuses, and the first European public residential solar asset-backed securitisation deal for Enpal, Europe’s leading solar company and Germany’s leading heat pump installer.
CSC’s team has extensive experience with project finance and is always willing to utilize its in-depth knowledge and technical expertise to provide services that help our clients meet their financing objectives. Our flexible, commercial approach and comprehensive suite of trust and agency products allow for both a successful closing and smooth administration over the life of the transaction.
We also provide a range of trust and agency services supporting project finance deals including the construction phase of data centers. As a partner, CSC’s success is defined by our clients’ success rather than simply performing duties prescribed in an agreement. We fulfil a multitude of required roles and responsibilities across the globe, providing a more coordinated and simplified approach than managing multiple agents and providers.
Our 125-year history, private ownership structure, and independence as a non-lending institution mean that we are here for the long-term, and our partners can trust that we will be around for the length of any transaction.
CSC provides a variety of services including:
- Special purpose vehicle (SPV) and cash management services
- Administrative agent and facility agent
- Collateral agent, security agent, and corporate trustee
CSC has also provided custody services for carbon allowances since 2006, holding hundreds of millions of certified emission reductions (CERs), assigned amount units (AAUs) and European Union Allowances (EUAs) in accordance with English or Dutch law governed custody agreements. We have extensive experience in opening registry accounts in and with the European Union Emissions Trading System (EU ETS) Registry and the U.K. ETS Registry
We are truly independent and non-conflicted, offering a tailored service offering to firms seeking the use of an independent carbon custodian.
This document is provided by CSC for information purposes only and does not constitute an offer, invitation or inducement to contract. The information herein does not constitute legal, tax, regulatory, accounting or other professional advice and therefore one should seek appropriate professional advice before considering a transaction as described in this document. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document.
[1] https://www.americanscientist.org/article/moonshot-computing
[2] https://www.usnews.com/news/technology/articles/2024-09-03/global-data-center-industry-to-emit-2-5-billion-tons-of-co2-through-2030-morgan-stanley-says
[3] https://www.bbc.com/news/articles/c748gn94k95o
[4] https://www.statista.com/forecasts/1474143/global-ai-market-size
[5] https://www.linklaters.com/en/about-us/news-and-deals/news/2024/may/us22bn-invested-in-data-centres-so-far-in-2024
