‘Strategic procurement essential to successful data center builds’
In the race to meet surging data demand, data centers are being built across the globe at speed. But securing the energy supply and optimising the massive capital expenditure required to build and operate data centers means strategic procurement is fast becoming a decisive success factor, says Kevin Domnick, Principal at Inverto.
To start with, how is AI changing the construction landscape for data centers?
With the rise of AI and increasingly compute-intensive applications, data centers are no longer just supporting cloud adoption but are becoming essential infrastructure assets. Computing capacity has turned into a strategic competitive factor for entire economies, leading to the need for substantial capital investments in data centre capacity.
At the same time, AI is driving up computing requirements, with energy demands now comparable to heavy industry, 10 to 50 times higher than that of a standard office building.
Energy companies are critical enablers of data centers. How is their role evolving?
Data centers are extremely energy-intensive assets and depend on reliable, redundant power. This makes strategic partnerships with energy providers essential, not only to secure sufficient volumes of power, but also to ensure competitive conditions and long-term planning security.
Data centers already consume around 7% of US electricity. Many facilities target uptime levels of around 99.98%, which require robust and stable capacity. Furthermore, due to the high energy demand, electricity prices materially affect competitiveness: a fluctuation of $50 per megawatt hour can change life cycle costs of a data center by 6% to 13%.
Given their experience with large-scale CAPEX projects and infrastructure delivery, do you see energy companies becoming more active as data center operators or developers?
Until now, it’s not common even though energy companies understand large-scale infrastructure delivery, grid integration, and long-term asset management.
At the same time, energy providers are becoming increasingly data-driven themselves: with smart metering, digital grid management and data-driven optimization of generation and distribution, energy companies generate and process enormous volumes of data. This makes data infrastructure a more strategic topic for them and also a significant cost element, as they currently have to buy data center capacity externally.
With energy supply being such a defining factor in data center growth, how significant is the challenge in European markets today?
Extremely significant. In many European markets, energy availability is already tight due to the energy transition and the phase-out of nuclear power in some countries. Also, other energy-intensive industries like chemistry, steel production, or telecom infrastructure compete for the same capacity.
Energy prices in Continental Europe remain comparatively high, while regions such as the Nordics or parts of the US benefit from lower-cost energy. Access to affordable and scalable energy has become a decisive location factor for new data centre developments. Further to this, regulatory approval processes and grid interconnection timelines can significantly influence project feasibility.
In summary, energy supply is not just an operational issue in Europe – it is often the determining factor for whether and where new data centers can be built.
Looking beyond energy and energy infrastructure – what are the key procurement requirements when constructing a data center?
The starting point is selecting the right execution model – typically EPC or EPCM – and ensuring strong, experienced contractor management from the outset. Given the scale and complexity of hyperscale projects, robust governance and interface management are critical.
EPC stands for Engineering, Procurement, Construction) and is a project delivery model in which one contractor takes full responsibility for designing, procuring, and building a facility, typically delivering it on a turnkey basis at a fixed price.
EPCM stands for Engineering, Procurement, Construction and Management. This model sees the contractor manage and coordinate these activities on behalf of the client, but the client holds the contracts with suppliers and contractors and retains more risk and control.
The challenges lie in accessing sufficient capabilities and ensuring reliable supply as the construction environment is highly constrained. Research from Inverto shows that there are notable bottlenecks in the availability of labour, alongside supplier and materials bottlenecks.
All of these topics require early procurement involvement, clear strategies and careful sequencing. For example, we currently see prolonged lead times for generators, transformers, UPS systems, and highvoltage substations.
Where do you currently see the greatest risks – and where are the most strategic opportunities?
The main risks are clear: constrained power capacity, prolonged equipment lead times, labor shortages, and regulatory challenges. These factors can delay projects and materially impact its economic success.
Energy providers that can secure reliable, scalable capacity and structure long-term partnerships with operators can position themselves as strategic enablers and benefit from the immense opportunities in this field.
Based on disciplined CAPEX governance, development of a resilient supplier network and innovation partnerships, strategic procurement can convert present constraints into sustainable competitive advantage.
