The Total Addressable Market (TAM) for Carbon Neutral Data Center was valued at USD 6.14 billion in 2022. It is estimated to reach USD 35.96 billion by 2031, growing at a CAGR of 21.7% during the forecast period (2023–2031).
A data center is a building or part of a building containing computers and networking devices that support the business units and the IT infrastructure of a company/organization. These data centers require a continuous power supply for operations, and due to the high-power requirements, data centers also release carbon emissions. On the other hand, a carbon neutral data center business involves a data center that releases negligible to zero carbon emissions.
Ensuring carbon neutrality in data centers allows organizations to reduce their carbon footprint while fulfilling their digital infrastructure requirements. Carbon neutral data center companies may serve as an opportunity for the entire market for data centers globally as increasingly industrial setups and corporations aim to establish sustainability in their digital operations. Carbon neutrality means sourcing energy from renewable sources and involves strategies to increase operational efficiency to avoid unnecessary wastage of power and other resources.
The carbon neutral data center industry is growing due to government rules and regulations propelling the market growth. Since 2011, the government and regional regulators have significantly formed environmental laws and legislatures, leading to various international agreements and accords that dictate how multiple countries shall undergo carbon neutralization. This also includes how modern infrastructure, such as data centers, can be designed or upgraded to gain carbon neutrality. For instance, the European Union has devised a long-term strategy, the Green Deal, to implement green and sustainable development in the region. As per the Green Deal, the European Union plans to implement 100% carbon neutrality for the entire data center industry by 2030.
Many regional governments are focusing on shifting from traditional non-renewable energy sources to renewable energy sources such as solar, wind, and geothermal. According to Directive (EU), 2018/2001, the European Union parliamentary commission voted to phase out non-renewable energy production by 2050. By 2030, at least 35% of the total energy will be sourced from renewable sources. Such initiatives have led to an industry-wide trend of procuring power from renewable energy sources. In addition, many leading data center companies such as Google, Equinox, Inc., Microsoft, and Digital Realty Trust, Inc. are eying to procure more energy from renewable sources, with Google and Apple already procuring or producing 100% of the power needed to run data centers from renewable sources.
Implementing carbon-neutral data centers calls for better and more efficient alternatives to data center cooling, including environment-friendly refrigerants and coolants such as HFOs, water, and ammonia, and newly developed cooling systems such as immersion cooling. Efficient cooling also includes heat capture, which forms the basis of carbon neutrality, as excess heat from the operations is utilized within the system or in the building. Existing data center infrastructure with HFC-based cooling systems will be crucial for achieving the goal of carbon neutrality. Apart from HFOs, hydrocarbons, water, and ammonia are some of the common refrigerants with shallow environmental impact.
Immersion cooling is also one of the most efficient cooling alternatives for IT components in data centers. Thus, the growth of alternative efficient cooling practices is driving the growth of carbon neutral data center services as these cooling techniques become fundamental building blocks of any data center and improvement in the efficiency directly adds up to the total efficiency of the data center.
Continuous electricity supply is a necessity for data center operations. Data centers must obtain 100% renewable energy to be carbon neutral. However, the total global renewable power consumption is just 26% due to the limited electricity generated from renewable sources. Even if data centers can procure 100% renewables with the rise of production, continuous power supply is again a restraint and a much more significant challenge to the data center industry. For instance, solar energy can only be harnessed for electricity production during the day and after the evening, and the grid must rely on other sources.
The alternatives include renewable sources such as wind and hydroelectricity. Hydroelectric dams also work on shifts as continuous production may lead to flooding since rivers are mostly obstructed to maintain a steady flow. Wind energy production depends on wind availability and speed, which is again not controllable. All these factors lead to discontinuity, and as data centers run 24/7, procuring 100% renewable energy for the entire process is complicated, which becomes a considerable challenge to the carbon neutral data center market.
Data centers are categorized into different tiers starting from tier 1, with the lowest redundancy, and tier 4, which are most resilient. Every data center needs a continuous power supply and ample backup from generators and UPS support. Even if a data center qualifies to be a carbon neutral data center, generators that run on fuels will still act as a carbon emission source. Therefore, to ensure carbon neutrality amongst data centers and to increase backup effectivity, many companies are looking toward better energy storage technologies that can act as power backups in times of low or no supply. Although these solutions give promising outcomes in the current scenario, they are costly.
Additionally, Lithium-ion is currently being used to manufacture UPS. The cost of the material has significantly dropped over the decade, creating an excellent opportunity for battery suppliers and data center operators to equip the battery with enough power backup to tackle the challenge of power outages. These batteries can also be utilized during peak hours when the servers are experiencing heavy loads, thus creating opportunities for market growth.
The global carbon neutral data center market is segmented by industry, data center type, and carbon neutral solutions.
By industry, the global market is segmented into the IT and telecom, BFSI, government or public sector, healthcare, manufacturing, retail, and others.
The IT and telecom industry segment is the highest contributor to the market and is expected to grow at a CAGR of 22.57% during the forecast period. The IT and telecom industry is the largest consumer of data centers globally. Most telecom companies own and operate their own data center facilities as telecom applications require high connectivity since these facilities are responsible for driving content delivery, mobile services, and cloud services. All the telecom companies own and operate their data center facilities; however, they might also lease or rent out colocation and hyperscale services for some applications. The entire industry is data-driven; thus, the segment has the largest share of the market. Since communication and interconnection are the most significant factors contributing to the success of the ICT industry, data centers have become mission-critical to this industry.
The healthcare industry has become one of the vital sectors for both the economy and human existence. With the ongoing trend for digitization, the healthcare industry has also started utilizing many IT devices and technologies to improve healthcare practices. Most of the increase in energy use is due to the use of ICT in healthcare. This includes monitors, cameras, computers, and other specialized healthcare tools, increasing the demand for data centers in the healthcare sector. The healthcare industry has some ongoing trends related to green IT practices, such as using electronic medical records (EMR), telemedicine, virtualization of computers and servers, and virtual collaboration. These are expected to reduce carbon emissions and increase dependence on data centers. The growing demand for data centers indirectly and directly increases energy consumption and carbon emissions, which calls for a greener solution such as carbon neutral data centers.
By data center type, the global market is divided into hyperscale data centers, enterprise data centers, colocation data centers, and others.
The hyperscale data center segment owns the highest market share and is expected to grow at a CAGR of 24.18% during the forecast period. Hyperscale data centers are facilities owned and operated by cloud service providers and are necessary for cloud and ample data storage. These data centers are large enough to host multiple cloud consumers at once. Hyperscale operators sometimes utilize external hosting and colocation services, mainly in the initial commissioning phase, before maintaining the facility internally. Enterprise and hyperscale data centers are owned and operated by a single entity. However, hyperscale data centers are connected to a high-speed network due to cloud connectivity and other cloud services. They have a very high fiber count utilized across the web. The carbon neutral data center services have a very high demand from hyperscale operators.
By carbon neutral solutions, the global carbon neutral data center market is divided into hardware, software and platforms, and support services.
The hardware segment owns the market share and is expected to grow at a CAGR of 20.69% during the forecast period. Data centers are facilities that have networking and data storage capabilities, and for these capabilities, specialized hardware such as servers and storage units are required. The hardware is interconnected through networking devices using wiring and power, which is used to run this infrastructure. Due to continuous running hardware, components get heated up, and cooling systems are required to offset this heat to avoid overheating or possible breakdown. The entire data center facility is ventilated correctly. For proper orientation, servers and storage units are racked in specialized casings that are not only used for the safekeeping of these units but also help contain heat and ventilation. Companies like IBM, Intel, Dell, and HP have developed highly efficient servers and computing devices. The market's future growth is expected to be positively impacted by new developments in the hardware segment. The hardware segment is further sub-segmented into servers, cooling and power, storage, and networking.
Software and platforms are a crucial part of the modern data center infrastructure. Most data center operators offer physical space for data storage and processing and provide the entire infrastructure as a service. Software tools and platforms help manage and scale these services and support data center operators in collecting data center operations. The trend for virtualization has created a surge in dedicated software development for data centers. Data center management software helps operators by increasing efficiency in operations. It enhances server and data security, and it helps in maintenance activities as well. The development of carbon neutral data center software and platforms can support the data centers to reduce carbon emissions, thereby contributing to the segment's growth.
By region, the global carbon neutral data center market is divided into North America, Europe, Asia-Pacific, and Rest of the World (RoW).
Asia-Pacific Dominates the Global Market
Asia-Pacific is the most significant shareholder in the global carbon neutral data center market and is anticipated to grow at a CAGR of 19.47% during the forecast period. The Asia-Pacific region has one of the largest economies in the world, with almost 1/3rd of the total population living in the area. Historically, the region has always offered opportunities for new technological advancements. Due to the high population and diversified demographics, adopting any technology would mean a widespread acceptance of products amongst one-third of the world's population. The region also has some of the very high growth economies in the world. The growing purchasing power and standard of living in the area have led to the widespread adoption of smartphones, which has significantly impacted the data center market. However, the region faces a climatic challenge as it is located in a comparatively warmer climate, which creates the need for cooling systems, which are a significant source of carbon emissions.
North America is anticipated to grow at a CAGR of 28.02% over the forecast period. North America is one of the largest data center markets in the world due to substantial industrial and commercial enterprises that have significantly impacted the demand for data centers in the region. The region also has some of the most significant market penetration of mobile and internet devices worldwide, increasing the need for data processing. According to IEA, North America has almost 79 TWh installed data center capacity, accounting for nearly 39.1% in 2020 globally. Although the region has a vast established infrastructure and is also witnessing an increase in the demand growth of carbon neutral data centers, the increase is less than that in Europe. Less strict standards and preexisting infrastructure are two major contributing factors. Another factor limiting growth is climatic conditions and over-reliance on non-renewable energy production.
Europe region has one of the most advanced economies in the world due to policies enacted by the European Union (EU) in its member states and ongoing efforts for digitization in the region. All these countries have made significant efforts to boost digital transformation and have been able to establish network continuity. Europe has enacted various policies to ensure energy efficiency, especially in the ICT industry. In 2015, the European Union adopted the digital single market strategy, which provides better online access to consumers and businesses through secure and high-speed IT infrastructure to boost digitization in the region. Europe is also planning to decarbonize the whole data center and ICT industry by 2030, as per The Green Deal. This initiative will ensure that the ICT industry becomes 100% carbon neutral for at least 20 years before other remaining targeted sectors for 2050. This initiative is expected to increase the demand for carbon neutral data centers in the region.
The key players in the global carbon neutral data center market are
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