TMT update (AI/data centers)

Recent/upcoming developments… The White House this week issued an Executive Order (EO) on “Advancing U.S. Leadership in AI Infrastructure.”  The goal of the EO is to address energy/resource needs for building data centers.  It directs the Departments of Defense (DOD), Energy (DOE), Interior (DOI), and others, to identify land they own/manage that can be leased to data center developers, outlines commitments that need to be made by the developers, and removes/streamlines barriers to operation of the data centers, with particular emphasis on access to power.  The solicitation process will take place over the first half this year, with the goal of permits being issued by the end of the year.

* Developers are required to pay for the building of the facilities, and to meet certain standards on cyber and physical security, among other areas.  Developers are also required to commit to use of clean power and have to disclose the sources of investment going into the site.  They will benefit from building on federal sites by not having to confront state/local regulatory barriers.  While developers will have to confront federal regulatory barriers, the EO facilitates expedited permitting (e.g., by allowing for environmental reviews to be done up-front).

* The EO takes a variety of steps to better enable access to power.  DOE will label areas around the sites as “energy corridors” that facilitate easier access to the power grid.  DOE will partner with the private sector in planning and enabling the building of new transmission lines to the sites.  DOI is also directed to identify sites that could deliver power to private sector partners.

* The EO puts emphasis on the use of clean power, though the definition of clean power is intended to be broad/flexible, with natural gas/carbon capture qualifying.  This has emerged as a source of controversy among Democrats.  When it became clear in December that the Biden administration was planning an initiative to facilitate the build out of data centers, Congressional Democrats, led by Sens. Whitehouse (D-RI) and Warren (D-MA), wrote to the administration to express their concern about loosening environmental regulations, and that facilitating the growth in data center construction would increase costs and climate emissions.  A number of environmental advocacy groups, led by Public Citizen, also wrote to the administration expressing similar concerns.

* President-elect Trump has also put significant emphasis on AI and data centers.  He repeatedly emphasized throughout the campaign his commitment to ensuring U.S. leadership on AI, and has appointed technology investor David Sacks to be the White House “AI and Crypto Czar.”  He’s also touted commitments that foreign investors (e.g., Masayoshi Son of Softbank, Hussain Sajwani) have made to him that they would deploy significant sums ($100b, $20b respectively) in AI and related infrastructure in the U.S.  Notably, Gov. Burgum (R-ND), Trump’s nominee for Interior Secretary and the leader of his new National Energy Council, has said that fossil energy production and a focus on grid reliability will be necessary to beat China in the “AI arms race.”  More generally, Trump has committed to taking a broad set of deregulatory steps to increase energy production from all sources, while also committing to rolling back many of the Biden/Democratic subsidies for clean energy.  Separately, the Republican Party platform notably calls for repeal of Biden’s separate EO on AI regulation.

Our outlook… The Biden administration moved quickly over the last year in recognizing that U.S. AI leadership was potentially threatened by regulatory barriers that inhibit the build out of data centers.  The issue has become particularly visible as U.S. technology firms began considering shifting the focus of their data center build-out to the Middle East.  Given the highly visible focus Trump and his team have put on U.S. AI leadership and data center investments, as well as related energy availability, we anticipate that the Trump administration will remain committed to the data center initiative announced by the Biden administration this week, though it may revise elements of it, particularly by de-emphasizing its focus on clean energy and putting focus on streamlined permitting to build out and access to fossil and nuclear sources as well.  Trump is also likely to pursue additional commitments by domestic and international investors in U.S. AI infrastructure build out.  As referenced in the campaign, we separately expect Trump to fulfill his commitment to repeal the Biden EO on AI regulation.

Watch for these developments… We are watching for signals from Burgum, as well as Chris Wright, Trump’s nominee for Energy Secretary, as well as David Sacks, his AI “czar” on how the Trump administration will build upon/modify the Biden data center EO.