Canada could be well positioned to capture more data centre investment if the United States government continues to antagonize its trade partners. A new report from the International Energy Agency (IEA) tracks soaring power requirements to enable artificial intelligence (AI) applications and underscores several potential supply vulnerabilities in the U.S..
Global electricity demand for data centre operations is projected to jump nearly 128 per cent over the remainder of this decade, climbing from 415 terrawatt-hours (TW-h) or 415 million megawatt-hours (MW-h) last year to 945 TW-h (945 million MW-h) by 2030. In 2024, data centres accounted for 186.75 TW-h of electricity load in the U.S., far surpassing data centre consumption in China (103.75 TW-h) and Europe (62.25 TW-h).
The largest share of new data centre development is likewise set for the United States. If the manufacturing sector remains relatively static, it’s anticipated data centres will be consuming more energy by 2030 than the combined production processes for aluminum, steel, cement, chemicals and all other energy-intensive goods. However, that’s a scenario contingent on adding generation and transmission capacity in an environment of rising costs, increased competition for key materials and equipment, and eroding goodwill of offshore suppliers if the U.S. government’s harsh new tariff regime remains in place.
The U.S. data centre development pipeline is set to channel about half of planned new facilities into five regions where such infrastructure is now prominently clustered, creating still more pressure on an already constrained transmission system. In north Virginia, for example, IEA analysts point to timelines of up to seven years for a new data centre to obtain a connection to the electricity grid. Meanwhile, AI diminishes one heretofore major influence on site selection that could prompt prospective developers to look farther afield.
“Data centres used for training AI models are less latency-sensitive. They don’t need to be located as close to the end-user. However, they do require a lot greater computational power,” Daniel Thorpe, a research director with JLL and co-author of the firm’s recent report on global data centre trends, advised during a webinar earlier this year. “As a result, we’re starting to see a shift in site-finding strategies. We’re seeing a bring-the-data-centre-to-the-power approach.”
Complicating costs and constraints
The IEA projects that additional power capacity to serve growth in data centre demand will primarily come from solar, onshore wind and gas-fired sources throughout the remainder of the 2020s since those generating facilities can typically be developed in less than five years. However, to be adequately reliable, the variable renewable sources will need to be paired with energy storage, which, for now, comes with cost premiums, technological challenges and other possible hindrances given the U.S. government’s retreat from its predecessor’s green energy agenda.
Natural gas costs could be increasing since 99 per cent of U.S. imports come from Canada and a 10 per cent tariff is threatened. As well, IEA analysts warn of supply chain disruptions that could significantly lengthen the schedule for project development. Based on information from the three leading manufacturers of gas turbines — GE Vernova, Siemens Energy and Mitsubishi Power — orders are now so backlogged that developers of new power plants may face waits of “several years” for this essential component.
“These extended delivery timelines cast doubt on the ability of utilities and energy companies to scale up natural gas-fired generation as quickly as planned to meet rising demand, especially in the near term. They are also driving up capital costs for the developers of new gas-fired plants,” The IEA report states. “High demand and constrained supply increase the pricing power of the turbine manufacturers. Longer delivery timelines lead to increased financing costs and can disrupt construction schedules, increasing the risk of cost overruns.”
Perhaps the most ambitious expectations are attached to small modular nuclear reactors (SMRs) among other types of generating facilities with generally longer development horizons. The technology is still in early stages of commercialization, worldwide, and the first projects are not slated to come online until at least 2030, but the concept is considered highly promising for producing a scalable output of 1.5 to 300 megawatts (MW), which could be connected to dedicated power loads, at much lower development costs than conventional nuclear power.
“If SMRs materialize as a credible power alternative, they could provide data centres with abundant green energy,” JLL’s report observes. “Several notable agreements were reached in 2024 between SMR companies and data centre operators. In 2025, look for an acceleration of SMR announcements, with the total amount of gigawatts committed likely to double.”
JLL identifies Canada as one of the world’s most active players for commercial SMR facilities, albeit none of which are yet under construction. Canada ranks third — behind the United States and Russia and ahead of China — for SMRs in the planning stages, while only Russia, China and Argentina have facilities under construction and only Russia and China host operational SMRs.
Drilling down to an imperative element of SMR operations, Canada is the world’s second most prolific exporter of uranium (after Kazakhstan) and the top supplier to non-military nuclear reactors in the United States. The U.S. Energy Information Administration confirms that American nuclear power plant operators have imported almost all of their uranium fuel since 1992, and the most recently available stats show Canada as the source of 27 per cent, or nearly 11 million pounds, of incoming supply in 2022.
Importers now face a threatened 10 per cent surcharge as part of the U.S. government’s currently paused tariffs on Canadian energy. As well, a new 10 per cent tax is now in place on uranium imports from four other prevalent sources — Kazakhstan, Russia, Uzbekistan and Australia — under the U.S. government’s separate reciprocal tariff manoeuvres.
Empowering policy instruments
The U.S. government’s continued tariff machinations could conceivably trigger electricity supply constraints in certain U.S. regions since some Canadian provincial government leaders have hinted that they will consider curtailing electricity exports in retaliation. In turn, Canadian power producers might be looking for new customers for surplus baseload, while data centre development and related energy projects should align with various federal, provincial and municipal strategies to spur innovation and economic development.
For example, the Manitoba government recently directed Manitoba Hydro not to renew an expiring contract for 500 MW of power with the U.S. based publicly traded private utility, Xcel Energy. An accompanying media release characterizes the move as repatriating and redeploying power to serve domestic priorities and ambitions.
“There is no better time to be partnering with other Canadian provinces and territories to build the infrastructure we need for a strong domestic economy,” asserts Manitoba Premier Wab Kinew.
Nor are governments alone in looking for partners.
“We’re seeing joint ventures becoming the most popular route to the market for many investors,” JLL’s Daniel Thorpe told webinar attendees. “These are very specialized sectors so there can be a lot of benefits gained if you partner with an experienced data centre operator or a developer.”
Ted Betts, a lawyer and head of the infrastructure and construction group with Gowling WLG in Toronto, suggests governments can play a strategic role in “de-risking” infrastructure investments — citing Canada Infrastructure Bank’s approach to inducing investment through assurance of more viable returns, or Infrastructure Ontario’s track record in fostering public-private partnerships. He also commends governments, in general, for their response to recent upheaval.
“They are genuinely trying to find ways to get confidence back in investment and to ease the burden, harm and damage being caused by the tariffs,” Betts reflects. “It’s one of those times, I think, government is stepping up to fulfill its proper role.”
