African data centres drive demand for renewables

From the newsletter

Digital infrastructure company Teraco has agreed to buy wind power from NOA, an integrated energy aggregator to power its data centres in South Africa. The deal is to complement its 120 MW solar plant under construction. The projects will be implemented in phases, with the first power delivery expected in 2026.

• The demand for data centres in Africa is expected to grow significantly in the coming years. The market is projected to reach 1,430 MW by 2030, nearly five times the current capacity.

• These high energy-consuming machines are increasingly adopting on-site power generation to reduce energy costs and improve energy security. 

More details

• NOA will supply renewable energy from multiple wind projects to Teraco’s facilities through a wheeling arrangement. The company was granted a trading licence last month by the National Energy Regulator of South Africa (NERSA).

• Teraco has eight data centres in South Africa with seven operational and one in development. They are located in Cape Town, Durban, and Johannesburg. The current data centre under construction will have a demand of 40 MW and completion is expected by 2026. Teraco plans to power 50% of its data centres with renewable energy by 2027 and 100% by 2035.

• Africa's data centre market, while still small, is rapidly growing. Projections indicate the market will reach $3 billion in revenues by 2025 and $5.4 billion by 2027. Currently, it accounts for less than 1% of global data centre capacity. There are 176 data centres listed across 33 African countries, with South Africa leading the continent with 47, followed by Kenya (18) and Nigeria (16).

• The majority of these data centres rely on grid power. However, this is becoming increasingly expensive and unsustainable, particularly given grid instability. Nigeria, Ghana, Kenya, and South Africa all experience frequent blackouts, forcing data centres to rely on expensive generators for energy security. This reliance is also becoming unsustainable due to global supply chain disruptions and price increases.

• New data centres are proactively sourcing renewable energy. In Kenya, ADC is targeting a 1 MW solar system to support its data centre in Nairobi. iCOLO has installed a 200 kW solar solution that supplies approximately 40% of its demand. IXAFRICA Data Centre plans to build a 1 MW solar plant to meet 10% of its demand. In Ghana, ONIX has built a 726 kW solar plant to meet its daytime load. Similarly, 21st Century Technologies in Nigeria has built a 1 MW solar plant to power part of its 4 MW demand.

• Africa is experiencing rapid internet adoption, leading to a surge in connected devices. Currently, there are an estimated 645 million connected devices, and this number is projected to exceed 1.1 billion by 2029. This increase will significantly drive the demand for data centres across the continent. Simultaneously, rapid urbanisation, expected to reach 60%, will further amplify the need for robust connectivity in densely populated areas.

• However, this growing demand for data centre energy brings a challenge especially given that roughly half of Africa's population is without access to power. This creates a potential conflict between the energy needs of data centres and the basic needs of people. A delicate balance is needed.

• Fortunately, Africa possesses abundant renewable energy resources. These resources offer a promising solution to meet both the escalating demands of data centres and the electricity needs of its population. 

Our take

• Africa's digital economy growth will create an investment opportunity in data centre infrastructure. Projections point that Africa will triple its current urban population by 2050 and this will only push the demand further for data centres.

• But the energy demand of the data centres won't be met by the grid alone. The unreliability and high cost of grid power will shrink data centre investors' returns. Investors should focus on renewables which offer predictable returns.

• This move will not only ensure operational resilience but also help improve environmental, social, and governance (ESG) credentials. This is increasingly becoming vital for attracting capital.