Latin America Data Center Outlook 2026: Power, Hubs & Growth
Video Language
Latin America's data center capacity is only about 2.5GW today, but it could grow by as much as 20% a year. Can the region turn the AI boom into a lasting investment hub?
In this episode, Leonardo Aguirre, Research Manager for Electric Power in Latin America, is joined by Ruth Vargas, Regional Research Manager for Industrial Manufacturing and lead of IIR's data center research team in Latin America, to unpack this fast-growing digital infrastructure sector. They explore how established hubs like São Paulo, Querétaro, and Santiago are scaling to meet AI-driven demand, and how emerging markets across the region are positioning for the next wave of investment.
Together they cover CloudHQ's $4.8 billion Querétaro project, rising contenders from Bogotá and southern Argentina to Paraguay and Lima, hyperscale versus co-location models, equipment delays of up to 18 months, liquid cooling, and why grid upgrades that take four to ten years can't keep pace with data centers built in one or two, pushing developers toward behind-the-meter generation.
The takeaway: Latin America has the renewable energy to win this boom, but securing reliable power is now as critical to project success as capital itself.
In this episode, Leonardo Aguirre, Research Manager for Electric Power in Latin America, is joined by Ruth Vargas, Regional Research Manager for Industrial Manufacturing and lead of IIR's data center research team in Latin America, to unpack this fast-growing digital infrastructure sector. They explore how established hubs like São Paulo, Querétaro, and Santiago are scaling to meet AI-driven demand, and how emerging markets across the region are positioning for the next wave of investment.
Together they cover CloudHQ's $4.8 billion Querétaro project, rising contenders from Bogotá and southern Argentina to Paraguay and Lima, hyperscale versus co-location models, equipment delays of up to 18 months, liquid cooling, and why grid upgrades that take four to ten years can't keep pace with data centers built in one or two, pushing developers toward behind-the-meter generation.
The takeaway: Latin America has the renewable energy to win this boom, but securing reliable power is now as critical to project success as capital itself.
Leonardo Aguirre (00:00):
Welcome to a new Industrial Insights podcast from Industrial Info Resources. My name is Leonardo Aguirre and I am the Regional Research Manager for the Power Generation industry in Latin America from our office in Cordoba, Argentina. Today, we will address one of the most disruptive topics in the global economy. Data centers.
While the demand for data storage and processing has been growing steadily in recent decades, driven by phenomena such as the mass adoption of the internet in the 1990s or the recent so-called Fourth Industrial Revolution, the emergence of AI meant a revolution that occurred less than five years ago, such that artificial intelligence almost overnight, became present in almost all aspects of current social and economic life. In this context, Latin America can become a hub for attracting investment for the sector. Today, the region has an installed data storage and processing capacity of around 2.5GW, but it is expected that it could grow at an annual rate of up to 20%.
To help us understand this phenomenon better, I am joined today by Ruth Vargas, our Regional Research Manager for the Manufacturing industry and leader of our research team in charge of data centers. With her, we will review the current situation of the sector in the region, what the main investment destinations are and what the future prospects look like.
Before we begin, I would like to clarify that all the information we will share next, and the analysis derived from it, is based on reliable data that following what is now 40 years of experience and our research methodology data that has been verified directly by our researchers by contacting the plants and companies responsible.
Now then, Ruth, to start, I would like to share with you a map shown on the screen a heat map showing the distribution of installed data storage and processing capacity in the region today. A map in which you can see that there is activity in almost all the countries of the region, those green and yellow areas on the map. But some central hubs stand out, which are the red dots. What is this map showing us regarding the current state of the sector in the region?
Ruth Vargas (02:40):
Yes, as you correctly mentioned, Leo, there is a lot of activity throughout the region, but the reality is that currently the digital infrastructure landscape in Latin America is dominated by three main hubs. In the city of Sao Paulo in Brazil, it remains the absolute leader in scale and maturity, concentrating up to 50% of regional co-location.
Leonardo Aguirre (03:04):
Sorry. Let me just interrupt you for a second. What does co-location mean?
Ruth Vargas (03:04):
Co-location is the rental of space, power, cooling, and connectivity from a specialized operator so that companies can install their own hardware. It's different from the enterprise type, where the company itself builds and operates and has absolute control over the data center.
Leonardo Aguirre (03:22):
So they would be opposite cases of leasing versus being the absolute owner of the facilities.
Ruth Vargas (03:28):
That's right. In Sao Paulo they exceed 500MW of installed capacity and have a portfolio of projects in development exceeding one gigawatt. Key companies like Scala, Ascenty and Equinix lead the market.
And what keeps it at the top is on one hand it's huge local demand and on the other it's availability of renewable energy.
In second place, we can find the city of Querétaro in Mexico, which has consolidated itself as the fastest growing hyperscale hub in Latin America. Becoming the favorite destination for growing for major cloud providers thanks to its proximity to Mexico City on one hand, and the US border.
Leonardo Aguirre (04:17):
Again the near shoring phenomenon impacting the regional economy.
Ruth Vargas (04:21):
That's right. Historically, Queretaro has been the favorite thanks to its strategic location.
It records an operational and under construction capacity exceeding 300MW and investment announcements exceeding one gigawatt for the coming years. Industry giants like KIO and OData operate in the area.
Leonardo Aguirre (04:38):
Yes, I even remember that while analyzing our information preparing for the podcast, it caught my attention that a single project, a CloudHQ project, that this single project could double the current capacity of 300 megs, adding almost another 300 megs more.
Ruth Vargas (04:56):
That's right. The company is investing $4,800,000,000 to build a data center right in the city of Querétaro. And they'll start work at the end of the year.
Leonardo Aguirre (05:09):
It's about to start, then.
Ruth Vargas (05:09):
That's right.
Leonardo Aguirre (05:09):
So in summary, we have this scheme, this situation where the activity is present throughout the region, but with these three poles you mentioned for first Sao Paulo leading the industry, followed by Queretaro, what would be the third hub pole that completes this podium?
Ruth Vargas (05:28):
As a third pole, we can identify the city of Santiago, Chile, which operates as a digital gateway to the Pacific. Its operational capacity exceeds 280MW. It's driven by projects that reach an additional 350MW at the hands of global and regional players like Grupo GTD, Ascenty, Equinix of Chile. Santiago stands out for its stable investment climate, for its abundant renewable energy and for its strategic position, reinforced by projects like the famous Humboldt submarine cable, which will allow for the direct fiber connection between fiber optics, sorry, between South America and Asia Pacific.
Leonardo Aguirre (06:13):
So it's really going to become a gateway to the Pacific.
Ruth Vargas (06:18):
That's right.
Leonardo Aguirre (06:18):
And now, I'd like to look further ahead. Let's go to December 2035, the same map we saw at the beginning. But now seeing what the planned capacity will be by the end of 2035. And here, you can see that the activity is expanding throughout the region. The hubs you mentioned are still there, even gaining relevance. But new hubs are emerging, new centers, new red dots on the map. What can you tell us about what's coming in the region?
Ruth Vargas (06:50):
Well, as you mentioned, the map is dynamic. You can see more activity. And this mainly happens because when in the large markets, the availability of energy and space runs out, the focus turns to secondary hubs where the big cloud operators are investing heavily to gain latency, redundancy and data sovereignty. In this sense, Bogota, a city in Colombia, is the strongest candidate to make the leap to a main hub. Its strategic position in the Andean region makes it a hub in full acceleration. Industrial Info Resources is currently monitoring investments worth $2,700,000,000, totaling about 340MW from major players like ODATA and Ascenty.
Leonardo Aguirre (07:41):
Right. I even see on that map, too, that, Argentina seems to emerge as a new hub in the future. But there in Argentina, it strikes me that, not only the expansion in activity in Buenos Aires, in the capital, which is expected, but also how the activity seems to be moving down towards the south of the country.
Ruth Vargas (08:00):
Yes, Argentina is definitely another emerging market. Its great appeal lies in the energy potential from Vaca Muerta to its renewables. Incentives like RIGI, which is the incentive regime for large investments and a cold climate in Patagonia, ideal for cooling large scale servers. We can highlight major investments like Stargate Argentina by the company OpenAI and investment of $25 billion. There's also the Atlas Giga Hub project, which aims to install three gigawatts of capacity, both projects in southern Argentina.
Leonardo Aguirre (08:40):
So I see that the South offers that ideal combination of energy access and a very favorable climate, since it's so-called and aside from these main hubs seen for the future, any other country, any other market to watch out for that today promises to accelerate in the future?
Ruth Vargas (08:59):
Yes, we can mention Paraguay, which is positioning itself as a strategic hub thanks to its surplus in hydroelectric generation. Its market focuses on build to suit infrastructure, along with public sector projects in Asuncion and Ciudad del este. And we can also mention Lima in Peru, which is also positioning itself as a future digital hub by 2030, thanks to its low energy and construction costs, attracted by the new Peruvian Data Center Association.
Leonardo Aguirre (09:30):
Right. There are two specific markets that we really need to keep an eye on.
Ruth Vargas (09:36):
That's right.
Leonardo Aguirre (09:36):
In the course of what you were telling us, you mentioned different formats or business models for data centers. That distinction between enterprise and co-location, hyperscale. Are countries specializing in one format or another, or is it something that happens uniformly across the region?
Ruth Vargas (09:58):
The reality is that for every market, there is a different need. In the Latin American data center market, we can find four key typologies depending on the region. Hyperscale developments lead in Mexico and Brazil, with rapid progress in Colombia and Paraguay. On the other hand, the co-location type scheme predominates in Chile and supports telecommunications in Colombia, Paraguay and Argentina, and the enterprise model is relevant in Colombia, Argentina and Paraguay, and infrastructure for crypto mining and intensive processing historically predominates in Paraguay due to, as I mentioned before, its energy surplus evolving as a bridge toward large artificial intelligence projects.
Leonardo Aguirre (10:43):
Right. So there's a very clear segmentation from country to country. And we've been talking or you've been talking about large investments, exponential growth and such rapid, sustained growth obviously must bring a wide array of complex challenges along with it. So looking ahead, what are the primary obstacles or significant threats that experts are currently seeing in the region for future investment?
Ruth Vargas (11:11):
As you rightly say, Leo, this level of expansion that is sought brings challenges. This kind of fever for artificial intelligence ends up saturating the global supply chain, causing bottlenecks, from delays of up to 18 months in the manufacturing of generators, chillers, transformers to a critical shortage in graphics processing units. To this, we must also add the significant and complex challenge of migrating our infrastructure to liquid cooling systems, primarily to avoid the intensive use of water in regions that are already facing severe water stress. It is a difficult transition, but a necessary one.
Environmental. In certain countries, the customs tariff and exchange barriers that we know, make the import of supplies more expensive, long permit procedures too and environmental licenses. A huge competition, on the other hand, due to the lack of specialized talent in high availability infrastructure standards. To all those factors is also added one that is more important, the most important of all, which is the shortage of electrical energy.
And, in this sense, I would like you to tell us what you see from the side of power generation.
Leonardo Aguirre (12:27):
Yes. In fact, today, this exponential growth in demand, in electricity demand by the data centers, a phenomenon that does not only occur in the region, it is a global phenomenon. It is a very current topic, very interesting within the power generation industry, because on the one hand, it is becoming one of the main drivers, one of the main boosters of demand in the sector of the power generation industry.
But on the other hand, because it is raising some red flags about potential risks in the future. Regarding the region, as I mentioned at the beginning. Today, the installed capacity in data centers is in the order of 2.5GW. That represents an electricity demand in the order of 23 terawatt hours per year, which are high numbers. They generate some friction in specific markets, but it does not constitute a systemic risk.
However, there are estimates, such as from OLADE, that in the course of the next decade, the electricity demand by data centers could skyrocket more than five times and reach 120 terawatt hours per year. And to give you an idea, we are talking about consumption equivalent to 40 million homes. It is practically a country.
And so the data center sector would be transformed. It would represent 5% of regional electricity consumption. And that's where managing to supply electricity in a constant and stable way for such an increase in demand will be quite a challenge and could indeed become a major hurdle for the development of investments in data center infrastructure.
Ruth Vargas (14:23):
Right, definitely. Because what we see is that data centers are currently powered by national grids. Is that right?
Leonardo Aguirre (14:28):
That's right, yes. Nowadays, the almost all or at least the vast majority of the electricity consumption of data centers in the region is supplied directly from the grids. This is usually organized through power purchase agreements, the thermo, the so-called PPAs. Contracts signed with generators, in most cases, renewable generators, wind, solar, hydroelectric, it depends on each country, although also with thermal generators. Mexico, for example, relies heavily on natural gas combined cycle generators.
Contracts that assign as a way to reduce the risk. The tariff risk. The tariff variability to guarantee access to the supply in the future. But yes, electricity coming from the grid. Which of, well, you must also see these data center developers are supplementing with on site installations within the data centers themselves of photovoltaic panels, storage batteries, internal combustion engines, but all on a small scale, low. The installed capacity is utilized primarily as a reliable backup source.
Ruth Vargas (15:41):
Yes. So, Leo, would this scheme be sustainable in the future?
Leonardo Aguirre (15:48):
A quick answer is no. On one hand, because even if these power purchase agreements are in place, the fact of depending on the grids for the electricity supply implies carrying all the tariff, regulatory and legislative risk of each country. But that's something that can be solved easily. In some cases, they are mere political decisions. But the big problem why this scheme is not sustainable in the long term today, is that the grids are not prepared for such exponential growth. And so especially because it takes a long time to upgrade the grid. You know that the development and construction of a data center is something that can take 1 or 2 years, perhaps. While the development or construction of a new substation or transmission lines is a process that can take four years and up to ten. So there is a very marked mismatch between the speed at which demand is expected to grow and the speed at which the supply through the networks can respond.
And this, for example, is magnified when we talk about the development of of hyperscale projects where the increase in demand is explosive, fast and in a very delimited geographic area. That is why more and more data center development is accompanied by what are called behind the meter generation plants, which are basically power generation plants built within the same sites as the data centers to supply, to be able to achieve the self-sufficiency of electricity, which is something that here in the region is still quite incipient. In the world this phenomenon is happening, a large combined cycle plants and other facilities.
And again here in the region, we are starting to see increasingly frequent announcements. You, for example, mentioned the Atlas Giga Hub project here in southern Argentina. That project is accompanied by the announcement of the installation of up to ten gigawatts in wind generation and battery storage. Recently, the Belgian ILWU group officially announced the successful installation of eight megawatts of power utilizing advanced modular nuclear micro-reactors. This significant project is currently being implemented across their primary industrial facilities located in both Argentina and Brazil, marking a major step forward in their energy strategy. Do you see other examples?
Ruth Vargas (18:42):
Another case I remember is that of the company Celestia, which will build a solar photovoltaic power plant along with a BESS battery plant to build a new hyperscale data center.
Leonardo Aguirre (18:53):
Right. Yes. And cases like those and announcements like those are being repeated more and more. They are becoming more and more frequent. But while this behind the meter solution brings with it other challenges. On the one hand, as you already mentioned today, there is a competition at a global level, a competition for certain critical equipment, many of which are also common to power generation plants, electrical transformers, batteries, generators and so on. Which if data centers also start building plants, they are doubling. They are aggravating this competition itself.
But on the other hand, which I think is the most, is just as important is the issue of, even if they are called behind the meter in the eyes of the regulatory bodies, they are power generation plants which will be subject to the same requirements for environmental permits, land use, water use, as any other plant in that power generation that they want to build in the country. And depending on the country, those permit processing procedures can take years. So it would be adding another layer of bureaucratic hurdles to the development of data centers.
That's why while there's a whole innovation race on one hand to improve the energy efficiency of data centers, reduce electricity use, water use and so on. On the other hand, also innovating in the way of supplying electricity to data centers. One case is what I mentioned about these reactors, modular nuclear micro reactors that will be installed in that ILWU plans to install. But, aside from this, first, a correct and very well thought out planning of the electrical grids will be necessary. And on the other hand, we'll have to provide agility and innovation to regulatory systems so that access to electricity doesn't actually end up becoming the main constraint for data center infrastructure development.
I think we're already running out of time. Therefore, from what we were talking about, this data center boom, this explosive growth is also something that is seen in the region. There is great, great potential. But just to conclude, I'd like to ask you two final questions. On one hand, if this boost in activity in the sector is something that will be sustained over time. And on the other hand, what would be the critical factors the region has to meet to be able to take advantage of this momentum?
Ruth Vargas (21:45):
Well, Leo, as artificial intelligence is increasingly integrated into business decisions and we move from the information age toward the age of answers, the demand for data processing capacity will continue to grow steadily and on a global level. I believe that in a context of increasingly interconnected markets, Latin America can play a key role in the sector and become an important investment hub because it's backed by its excellent renewable resources for power generation, its human and climate resources.
But nevertheless, as you well mentioned, for these investments to come to fruition, a rapid and well-planned adaptation of its laws and regulatory schemes will be necessary, especially in environmental matters. The tariff and commercial matters in such a way that it doesn't end up slowing the arrival of capital and to facilitate the import of equipment and critical components.
On the other hand, they'll have to make a maximum effort in the race to get the transmission and electrical distribution infrastructure ready and in good condition and other basic infrastructure, which is what you've also been mentioning.
Leonardo Aguirre (23:07):
So a promising future, but there's also some homework to do.
Ruth Vargas (23:07):
Lots of work to do, exactly.
Leonardo Aguirre (23:15):
To be able to take advantage of it. Ruth, thank you very much for joining us and shedding light on this very interesting topic.
Ruth Vargas (23:20):
Thank you, Leo.
Leonardo Aguirre (23:24):
And to our audience, thank you for listening to us. We look forward to seeing you in our next podcast. And remember that on our site, www.industrialinfo.com, you can find the library with all our past podcasts. See you later.
Welcome to a new Industrial Insights podcast from Industrial Info Resources. My name is Leonardo Aguirre and I am the Regional Research Manager for the Power Generation industry in Latin America from our office in Cordoba, Argentina. Today, we will address one of the most disruptive topics in the global economy. Data centers.
While the demand for data storage and processing has been growing steadily in recent decades, driven by phenomena such as the mass adoption of the internet in the 1990s or the recent so-called Fourth Industrial Revolution, the emergence of AI meant a revolution that occurred less than five years ago, such that artificial intelligence almost overnight, became present in almost all aspects of current social and economic life. In this context, Latin America can become a hub for attracting investment for the sector. Today, the region has an installed data storage and processing capacity of around 2.5GW, but it is expected that it could grow at an annual rate of up to 20%.
To help us understand this phenomenon better, I am joined today by Ruth Vargas, our Regional Research Manager for the Manufacturing industry and leader of our research team in charge of data centers. With her, we will review the current situation of the sector in the region, what the main investment destinations are and what the future prospects look like.
Before we begin, I would like to clarify that all the information we will share next, and the analysis derived from it, is based on reliable data that following what is now 40 years of experience and our research methodology data that has been verified directly by our researchers by contacting the plants and companies responsible.
Now then, Ruth, to start, I would like to share with you a map shown on the screen a heat map showing the distribution of installed data storage and processing capacity in the region today. A map in which you can see that there is activity in almost all the countries of the region, those green and yellow areas on the map. But some central hubs stand out, which are the red dots. What is this map showing us regarding the current state of the sector in the region?
Ruth Vargas (02:40):
Yes, as you correctly mentioned, Leo, there is a lot of activity throughout the region, but the reality is that currently the digital infrastructure landscape in Latin America is dominated by three main hubs. In the city of Sao Paulo in Brazil, it remains the absolute leader in scale and maturity, concentrating up to 50% of regional co-location.
Leonardo Aguirre (03:04):
Sorry. Let me just interrupt you for a second. What does co-location mean?
Ruth Vargas (03:04):
Co-location is the rental of space, power, cooling, and connectivity from a specialized operator so that companies can install their own hardware. It's different from the enterprise type, where the company itself builds and operates and has absolute control over the data center.
Leonardo Aguirre (03:22):
So they would be opposite cases of leasing versus being the absolute owner of the facilities.
Ruth Vargas (03:28):
That's right. In Sao Paulo they exceed 500MW of installed capacity and have a portfolio of projects in development exceeding one gigawatt. Key companies like Scala, Ascenty and Equinix lead the market.
And what keeps it at the top is on one hand it's huge local demand and on the other it's availability of renewable energy.
In second place, we can find the city of Querétaro in Mexico, which has consolidated itself as the fastest growing hyperscale hub in Latin America. Becoming the favorite destination for growing for major cloud providers thanks to its proximity to Mexico City on one hand, and the US border.
Leonardo Aguirre (04:17):
Again the near shoring phenomenon impacting the regional economy.
Ruth Vargas (04:21):
That's right. Historically, Queretaro has been the favorite thanks to its strategic location.
It records an operational and under construction capacity exceeding 300MW and investment announcements exceeding one gigawatt for the coming years. Industry giants like KIO and OData operate in the area.
Leonardo Aguirre (04:38):
Yes, I even remember that while analyzing our information preparing for the podcast, it caught my attention that a single project, a CloudHQ project, that this single project could double the current capacity of 300 megs, adding almost another 300 megs more.
Ruth Vargas (04:56):
That's right. The company is investing $4,800,000,000 to build a data center right in the city of Querétaro. And they'll start work at the end of the year.
Leonardo Aguirre (05:09):
It's about to start, then.
Ruth Vargas (05:09):
That's right.
Leonardo Aguirre (05:09):
So in summary, we have this scheme, this situation where the activity is present throughout the region, but with these three poles you mentioned for first Sao Paulo leading the industry, followed by Queretaro, what would be the third hub pole that completes this podium?
Ruth Vargas (05:28):
As a third pole, we can identify the city of Santiago, Chile, which operates as a digital gateway to the Pacific. Its operational capacity exceeds 280MW. It's driven by projects that reach an additional 350MW at the hands of global and regional players like Grupo GTD, Ascenty, Equinix of Chile. Santiago stands out for its stable investment climate, for its abundant renewable energy and for its strategic position, reinforced by projects like the famous Humboldt submarine cable, which will allow for the direct fiber connection between fiber optics, sorry, between South America and Asia Pacific.
Leonardo Aguirre (06:13):
So it's really going to become a gateway to the Pacific.
Ruth Vargas (06:18):
That's right.
Leonardo Aguirre (06:18):
And now, I'd like to look further ahead. Let's go to December 2035, the same map we saw at the beginning. But now seeing what the planned capacity will be by the end of 2035. And here, you can see that the activity is expanding throughout the region. The hubs you mentioned are still there, even gaining relevance. But new hubs are emerging, new centers, new red dots on the map. What can you tell us about what's coming in the region?
Ruth Vargas (06:50):
Well, as you mentioned, the map is dynamic. You can see more activity. And this mainly happens because when in the large markets, the availability of energy and space runs out, the focus turns to secondary hubs where the big cloud operators are investing heavily to gain latency, redundancy and data sovereignty. In this sense, Bogota, a city in Colombia, is the strongest candidate to make the leap to a main hub. Its strategic position in the Andean region makes it a hub in full acceleration. Industrial Info Resources is currently monitoring investments worth $2,700,000,000, totaling about 340MW from major players like ODATA and Ascenty.
Leonardo Aguirre (07:41):
Right. I even see on that map, too, that, Argentina seems to emerge as a new hub in the future. But there in Argentina, it strikes me that, not only the expansion in activity in Buenos Aires, in the capital, which is expected, but also how the activity seems to be moving down towards the south of the country.
Ruth Vargas (08:00):
Yes, Argentina is definitely another emerging market. Its great appeal lies in the energy potential from Vaca Muerta to its renewables. Incentives like RIGI, which is the incentive regime for large investments and a cold climate in Patagonia, ideal for cooling large scale servers. We can highlight major investments like Stargate Argentina by the company OpenAI and investment of $25 billion. There's also the Atlas Giga Hub project, which aims to install three gigawatts of capacity, both projects in southern Argentina.
Leonardo Aguirre (08:40):
So I see that the South offers that ideal combination of energy access and a very favorable climate, since it's so-called and aside from these main hubs seen for the future, any other country, any other market to watch out for that today promises to accelerate in the future?
Ruth Vargas (08:59):
Yes, we can mention Paraguay, which is positioning itself as a strategic hub thanks to its surplus in hydroelectric generation. Its market focuses on build to suit infrastructure, along with public sector projects in Asuncion and Ciudad del este. And we can also mention Lima in Peru, which is also positioning itself as a future digital hub by 2030, thanks to its low energy and construction costs, attracted by the new Peruvian Data Center Association.
Leonardo Aguirre (09:30):
Right. There are two specific markets that we really need to keep an eye on.
Ruth Vargas (09:36):
That's right.
Leonardo Aguirre (09:36):
In the course of what you were telling us, you mentioned different formats or business models for data centers. That distinction between enterprise and co-location, hyperscale. Are countries specializing in one format or another, or is it something that happens uniformly across the region?
Ruth Vargas (09:58):
The reality is that for every market, there is a different need. In the Latin American data center market, we can find four key typologies depending on the region. Hyperscale developments lead in Mexico and Brazil, with rapid progress in Colombia and Paraguay. On the other hand, the co-location type scheme predominates in Chile and supports telecommunications in Colombia, Paraguay and Argentina, and the enterprise model is relevant in Colombia, Argentina and Paraguay, and infrastructure for crypto mining and intensive processing historically predominates in Paraguay due to, as I mentioned before, its energy surplus evolving as a bridge toward large artificial intelligence projects.
Leonardo Aguirre (10:43):
Right. So there's a very clear segmentation from country to country. And we've been talking or you've been talking about large investments, exponential growth and such rapid, sustained growth obviously must bring a wide array of complex challenges along with it. So looking ahead, what are the primary obstacles or significant threats that experts are currently seeing in the region for future investment?
Ruth Vargas (11:11):
As you rightly say, Leo, this level of expansion that is sought brings challenges. This kind of fever for artificial intelligence ends up saturating the global supply chain, causing bottlenecks, from delays of up to 18 months in the manufacturing of generators, chillers, transformers to a critical shortage in graphics processing units. To this, we must also add the significant and complex challenge of migrating our infrastructure to liquid cooling systems, primarily to avoid the intensive use of water in regions that are already facing severe water stress. It is a difficult transition, but a necessary one.
Environmental. In certain countries, the customs tariff and exchange barriers that we know, make the import of supplies more expensive, long permit procedures too and environmental licenses. A huge competition, on the other hand, due to the lack of specialized talent in high availability infrastructure standards. To all those factors is also added one that is more important, the most important of all, which is the shortage of electrical energy.
And, in this sense, I would like you to tell us what you see from the side of power generation.
Leonardo Aguirre (12:27):
Yes. In fact, today, this exponential growth in demand, in electricity demand by the data centers, a phenomenon that does not only occur in the region, it is a global phenomenon. It is a very current topic, very interesting within the power generation industry, because on the one hand, it is becoming one of the main drivers, one of the main boosters of demand in the sector of the power generation industry.
But on the other hand, because it is raising some red flags about potential risks in the future. Regarding the region, as I mentioned at the beginning. Today, the installed capacity in data centers is in the order of 2.5GW. That represents an electricity demand in the order of 23 terawatt hours per year, which are high numbers. They generate some friction in specific markets, but it does not constitute a systemic risk.
However, there are estimates, such as from OLADE, that in the course of the next decade, the electricity demand by data centers could skyrocket more than five times and reach 120 terawatt hours per year. And to give you an idea, we are talking about consumption equivalent to 40 million homes. It is practically a country.
And so the data center sector would be transformed. It would represent 5% of regional electricity consumption. And that's where managing to supply electricity in a constant and stable way for such an increase in demand will be quite a challenge and could indeed become a major hurdle for the development of investments in data center infrastructure.
Ruth Vargas (14:23):
Right, definitely. Because what we see is that data centers are currently powered by national grids. Is that right?
Leonardo Aguirre (14:28):
That's right, yes. Nowadays, the almost all or at least the vast majority of the electricity consumption of data centers in the region is supplied directly from the grids. This is usually organized through power purchase agreements, the thermo, the so-called PPAs. Contracts signed with generators, in most cases, renewable generators, wind, solar, hydroelectric, it depends on each country, although also with thermal generators. Mexico, for example, relies heavily on natural gas combined cycle generators.
Contracts that assign as a way to reduce the risk. The tariff risk. The tariff variability to guarantee access to the supply in the future. But yes, electricity coming from the grid. Which of, well, you must also see these data center developers are supplementing with on site installations within the data centers themselves of photovoltaic panels, storage batteries, internal combustion engines, but all on a small scale, low. The installed capacity is utilized primarily as a reliable backup source.
Ruth Vargas (15:41):
Yes. So, Leo, would this scheme be sustainable in the future?
Leonardo Aguirre (15:48):
A quick answer is no. On one hand, because even if these power purchase agreements are in place, the fact of depending on the grids for the electricity supply implies carrying all the tariff, regulatory and legislative risk of each country. But that's something that can be solved easily. In some cases, they are mere political decisions. But the big problem why this scheme is not sustainable in the long term today, is that the grids are not prepared for such exponential growth. And so especially because it takes a long time to upgrade the grid. You know that the development and construction of a data center is something that can take 1 or 2 years, perhaps. While the development or construction of a new substation or transmission lines is a process that can take four years and up to ten. So there is a very marked mismatch between the speed at which demand is expected to grow and the speed at which the supply through the networks can respond.
And this, for example, is magnified when we talk about the development of of hyperscale projects where the increase in demand is explosive, fast and in a very delimited geographic area. That is why more and more data center development is accompanied by what are called behind the meter generation plants, which are basically power generation plants built within the same sites as the data centers to supply, to be able to achieve the self-sufficiency of electricity, which is something that here in the region is still quite incipient. In the world this phenomenon is happening, a large combined cycle plants and other facilities.
And again here in the region, we are starting to see increasingly frequent announcements. You, for example, mentioned the Atlas Giga Hub project here in southern Argentina. That project is accompanied by the announcement of the installation of up to ten gigawatts in wind generation and battery storage. Recently, the Belgian ILWU group officially announced the successful installation of eight megawatts of power utilizing advanced modular nuclear micro-reactors. This significant project is currently being implemented across their primary industrial facilities located in both Argentina and Brazil, marking a major step forward in their energy strategy. Do you see other examples?
Ruth Vargas (18:42):
Another case I remember is that of the company Celestia, which will build a solar photovoltaic power plant along with a BESS battery plant to build a new hyperscale data center.
Leonardo Aguirre (18:53):
Right. Yes. And cases like those and announcements like those are being repeated more and more. They are becoming more and more frequent. But while this behind the meter solution brings with it other challenges. On the one hand, as you already mentioned today, there is a competition at a global level, a competition for certain critical equipment, many of which are also common to power generation plants, electrical transformers, batteries, generators and so on. Which if data centers also start building plants, they are doubling. They are aggravating this competition itself.
But on the other hand, which I think is the most, is just as important is the issue of, even if they are called behind the meter in the eyes of the regulatory bodies, they are power generation plants which will be subject to the same requirements for environmental permits, land use, water use, as any other plant in that power generation that they want to build in the country. And depending on the country, those permit processing procedures can take years. So it would be adding another layer of bureaucratic hurdles to the development of data centers.
That's why while there's a whole innovation race on one hand to improve the energy efficiency of data centers, reduce electricity use, water use and so on. On the other hand, also innovating in the way of supplying electricity to data centers. One case is what I mentioned about these reactors, modular nuclear micro reactors that will be installed in that ILWU plans to install. But, aside from this, first, a correct and very well thought out planning of the electrical grids will be necessary. And on the other hand, we'll have to provide agility and innovation to regulatory systems so that access to electricity doesn't actually end up becoming the main constraint for data center infrastructure development.
I think we're already running out of time. Therefore, from what we were talking about, this data center boom, this explosive growth is also something that is seen in the region. There is great, great potential. But just to conclude, I'd like to ask you two final questions. On one hand, if this boost in activity in the sector is something that will be sustained over time. And on the other hand, what would be the critical factors the region has to meet to be able to take advantage of this momentum?
Ruth Vargas (21:45):
Well, Leo, as artificial intelligence is increasingly integrated into business decisions and we move from the information age toward the age of answers, the demand for data processing capacity will continue to grow steadily and on a global level. I believe that in a context of increasingly interconnected markets, Latin America can play a key role in the sector and become an important investment hub because it's backed by its excellent renewable resources for power generation, its human and climate resources.
But nevertheless, as you well mentioned, for these investments to come to fruition, a rapid and well-planned adaptation of its laws and regulatory schemes will be necessary, especially in environmental matters. The tariff and commercial matters in such a way that it doesn't end up slowing the arrival of capital and to facilitate the import of equipment and critical components.
On the other hand, they'll have to make a maximum effort in the race to get the transmission and electrical distribution infrastructure ready and in good condition and other basic infrastructure, which is what you've also been mentioning.
Leonardo Aguirre (23:07):
So a promising future, but there's also some homework to do.
Ruth Vargas (23:07):
Lots of work to do, exactly.
Leonardo Aguirre (23:15):
To be able to take advantage of it. Ruth, thank you very much for joining us and shedding light on this very interesting topic.
Ruth Vargas (23:20):
Thank you, Leo.
Leonardo Aguirre (23:24):
And to our audience, thank you for listening to us. We look forward to seeing you in our next podcast. And remember that on our site, www.industrialinfo.com, you can find the library with all our past podcasts. See you later.
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*This episode is brought to you by Industrial Info's Latin American Office in Argentina.