Energy availability, limited supply chain are obstacles for datacenter expansion in LatAm

By Turner & Townsend

São Paulo, October 10, 2024 – The rapid expansion of the data center market, driven by Artificial Intelligence (AI), faces significant challenges due to energy availability and supply chain limitations.

The annual Data Centre Cost Index from global professional services company, Turner & Townsend, analyzes the current average cost per watt to build data centers in 50 global markets and used survey responses from 250 industry leaders to identify trends in the data center industry.

The report showed that 92% of respondents see AI as the technology that will have the most significant impact on data center operations in the next 3-5 years. However, the industry faces challenges in meeting demand, as reported by 80% of professionals who experienced delays in the manufacturing or delivery of critical equipment.

With technology being a key factor, 80% of respondents said that energy availability is the most important factor in choosing a data center location, more so than the location of new projects.

Challenges in Latin America:

The data center market in the region is undergoing significant transformation. Primary markets such as São Paulo (mainly around Campinas) and Mexico City (mainly around Querétaro) continue to attract significant investments, while smaller markets like Bogotá are constantly being evaluated. Recently, Montevideo has seen growth, with Google announcing an $850 million investment to build a new data center. Santiago remains a critical hub, with substantial investments and well-established infrastructure.

Energy availability remains a critical issue in the region, particularly due to the reliance on hydroelectric power and electrical grids that require more investment. Although hydroelectric facilities provide a substantial portion of the region’s green energy, they are vulnerable to climate variability, making reliability a significant concern for data centers, where any downtime can lead to major disruptions.

Lloyd Wallace, Director and Head of the Data Center Sector in Latin America at Turner & Townsend, commented:

“The digital revolution and interest in how AI can support our professional and personal lives are booming, helping the data center market remain one of the hottest areas of the global economy. Data centers are increasingly seen by governments as critical national infrastructure, and there is clearly a huge opportunity for Latin America, especially in countries like Brazil, Mexico, and recently Colombia – but the growing challenges, mainly energy supply and labor shortages, need to be managed.”

In recent years, Latin America has positioned itself as a potential technology hub, leveraging its green energy credentials to attract investment and development for AI-driven applications. 

The abundance of hydroelectric power in the region offers a sustainable energy source, although with fewer redundancies compared to more diversified power grids. This makes Latin America’s energy landscape particularly suitable for AI development, despite the challenges posed to cloud servers by hydroelectric power variability.

Recent announcements highlight this trend, with data center developers having announced plans to build a massive data center campus in strategic locations such as Rio Grande do Sul. Similarly, Microsoft has announced significant investments in AI and cloud infrastructure in both Brazil and Mexico, further consolidating the region’s role in the global AI landscape.

To access the full report, click here