Big Tech data center operators face severe weather risks as Europe experiences a record-breaking heatwave this week, with temperatures underscoring infrastructure vulnerabilities. Over the past three years, severe weather has become the leading cause of loss in Zurich's U.S. data center builders' risk portfolio, now driving a third of the company's losses, according to Zurich's Head of International Construction Patrick McBride. The challenge intensifies as 64% of data center capacity under construction moves outside traditional hubs into frontier markets where extreme weather exposure was previously underdocumented, with facilities now representing billions in asset value vulnerable to climate hazards.
Zurich Reports Severe Weather as Leading Data Center Loss Driver
Patrick McBride told CNBC that many data centers are moving to suburban or rural areas where land is cheaper and records of extreme weather were often limited because the areas were largely underdeveloped. "Now we have $3 billion worth of assets with over a mile worth of exposure to these events," McBride said. He added that "severe weather is no longer something that can be treated as a background exposure. It is one of the first things we and the owners we work with look at."
This year, 64% of data center capacity under construction is outside traditional hubs such as Northern Virginia and moving into frontier markets, such as West Texas, Tennessee, Wisconsin and Ohio, according to McBride. He added that facilities in these areas can face heightened risk of "tornadoes, hail and high winds wreaking havoc on vast roofs that have exposed HVAC [heating and cooling systems], cooling towers and energy installations like solar." McBride gave Brazil as an example of an emerging data center market that might face heat challenges, while in Europe, data centers are migrating to areas like the Iberian Peninsula, where temperatures are also rising.
First Street Study Identifies Climate Risks in 79% of Data Center Capacity
A recent study by climate risk analytics firm First Street found that 79% of global data center capacity faces elevated risks from acute climate hazards such as flooding, extreme winds, and wildfires that can disrupt operations, increase downtime and drive insurance and repair costs.
"It's not a matter of 'if' climate risks will impact the digital infrastructure revolution," Joe Macejak, U.S. property digital infrastructure leader at Marsh Risk, told CNBC. "But rather how clients and stakeholders in the digital infrastructure industry identify, quantify, and manage these climate risks within their respective tolerances." Macejak added that if businesses don't manage these risks, they could face higher costs and operational shortfalls "which pose a threat to the capital stacks that are fueling the AI-driven data center revolution."
Mishal Thadani, CEO and co-founder of AI software platform Rhizome, said "extreme heat stresses data centers and the grid they rely on at the same time." Cooling makes up around 40% of data centers' energy use even at normal temperature, and this rises in extreme heat, just when air conditioning is driving up demand for the power grid, Thadani said. "Data centers need the most energy exactly when the grid has the least available to give."
Thadani provided the example of the Italian city of Turin that saw highs of around 38 degrees Celsius (100 degrees Fahrenheit) in May. The heatwave put the city's underground cables under thermal stress, and it caused repeated blackouts, Thadani said. "Now add facilities that each pull as much power as a hundred thousand homes. The heat and the load hit the same wires at the same time. Data center load can be curtailed during the worst hours, but most planning models still don't account for how much more often extreme heat is coming," Thadani added.
Microsoft and Nvidia Implement Design Adaptations for Extreme Heat
Microsoft told CNBC that it is preparing for changing conditions. Microsoft designs its data centers to operate "reliably in a wide range of environmental conditions, with site selection, redundant systems, and real-time monitoring helping manage risks from extreme heat and severe weather," a spokesperson told CNBC on Thursday.
Tech giant Nvidia said last week that its new AI servers can run their cooling liquid at 45 degrees Celsius, up from previously lower temperatures. Raising chiller temperatures by just one degree can cut cooling energy costs by about 4%, Nvidia said.
Aaron Lewis, chief commercial officer of global data center solutions at HVAC company Johnson Controls, said the company already tests data-center cooling equipment to ensure it can withstand various temperatures. Lewis said that recently, for the first time, he saw a client in Europe add a "climate change factor" in the specification, so their data centers are designed for temperature rises. "The pace of innovation driven by the data center boom is going to allow us to operate under some of these conditions far into the future," Lewis told CNBC.
FAQ
What percentage of global data center capacity faces elevated climate risks?
According to a study by climate risk analytics firm First Street, 79% of global data center capacity faces elevated risks from acute climate hazards such as flooding, extreme winds, and wildfires.
Why has severe weather become a leading concern for data center insurers?
Over the past three years, severe weather has become the leading cause of loss in Zurich's U.S. data center builders' risk portfolio, now driving a third of the company's losses, as facilities increasingly locate in suburban or rural areas where extreme weather exposure was previously underdocumented.
How much of data center energy consumption goes toward cooling?
Cooling makes up around 40% of data centers' energy use even at normal temperature, and this rises in extreme heat, according to Mishal Thadani, CEO and co-founder of AI software platform Rhizome.
