Transcript: AI’s electricity problem

This is an audio transcript of the FT News Briefing podcast episode: ‘AI’s electricity problem’

Sonja Hutson
Good morning from the Financial Times. Today is Thursday, April 18th, and this is your FT News Briefing.

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Iran’s oil business is booming. And there is one thing AI can’t generate: power. Plus, countries in the EU are fighting over whether to unify capital markets. I’m Sonja Hutson and here’s the news you need to start your day.

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Iran’s oil exports hit a six-year high in the first quarter. It’s sold an average of about 1.5mn barrels a day. Virtually all of those exports went to China. That relationship has largely shielded Iran from western sanctions. The new export data underscores how difficult it is for western countries to apply economic pressure to Iran, which the US and the EU want to increase after Tehran’s air attack on Israel.

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Several big EU countries want to create one central capital market and they want Brussels to oversee it. But a majority of smaller EU countries are fighting back against the idea. The proposal has been kicking around for about a decade and EU leaders are expected to meet today to discuss how to move forward. I’m joined now by the FT’s Paola Tamma. Hi, Paola.

Paola Tamma
Hello.

Sonja Hutson
So what exactly is the proposal on the table here? Give me some of the details.

Paola Tamma
So there is a push that is led by France and supported by some of the bloc’s bigger economies — that is Italy, Spain, the Netherlands and Poland — to essentially revive efforts to unify the EU’s capital markets. The goal will be to have just one single capital market instead of 27, as are the number of EU countries, and would mean giving Esma, the EU financial markets regulator, direct oversight of pension funds, but also investment funds and so on and so forth.

Sonja Hutson
And why do these large countries support this idea?

Paola Tamma
So the reason why there is this push at a political level by EU leaders is that they realise that there is a huge competitiveness gap with the US, and the EU needs to kind of catch up. And one of the recipes that they want to use for that is to ensure that there is no more financial outflows from the EU towards the rest of the world, mostly of which goes to the US. And unless, they think, capital markets are fully integrated, this money will not come to fruition. When you have 27 different capital markets, different 27 regulators in different languages and different laws, it’s difficult for investors to integrate and to make the investments that they want.

Sonja Hutson
And why are the small countries opposed to this?

Paola Tamma
So a bunch of small countries led by Luxembourg do not feel that this would give them enough control of their own financial markets. And so they’re pushing back on most of these things and the controversial things such as centralising supervision. So it has become a big country vs small country push. And in general, I think what these small countries fear is that if the large guys — so France, Italy, Spain, but also Germany — sit on one end, they will set rules that benefit their industry better. And so these countries are coming to the summit today in a quite feisty mood. We’ve just heard on Wednesday from the prime minister of Luxembourg saying, well, we do not agree with everything they propose, or we like the idea of a capital market but, you know, we want a pragmatic approach.

Sonja Hutson
Why do you think this is so controversial? I mean, there’s already been a lot of economic integration in the EU. So why is there so much pushback to this type of integration in particular?

Paola Tamma
It’s about not giving Esma, the central regulator in the EU, the supervision they would need. Because so far every single nation has the ability to set the rules for their own financial market sector, and they would lose that. And as usual in the EU, when it’s about giving more powers at a supranational level, there’s always resistance. And this is historically what has led to less than ideal integration in Europe’s capital markets.

Sonja Hutson
Paola Tamma is an EU correspondent for the FT. Thanks, Paola.

Paola Tamma
Thank you.

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Sonja Hutson
US government spending is expected to exceed its revenue by about 7 per cent next year. That’s more than three times the average fiscal deficit for other advanced economies. The International Monetary Fund says that could pose a significant risk to the global economy. It has already stoked inflation and could cause turbulent exchange rates in developing countries. The IMF’s chief economist is also worried that it could complicate the Federal Reserve’s attempts to return inflation to its 2 per cent goal.

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AI has a power problem. It takes a ton of electricity to run artificial intelligence software. As the technology develops, it’s only gonna need more. The world just doesn’t have the infrastructure to support that and the industry has been struggling to build it up. Here to talk about how that could impact AI development is the FT’s Camilla Hodgson. Hi, Camilla.

Camilla Hodgson
Hi.

Sonja Hutson
First of all, how much power are we talking about here?

Camilla Hodgson
Yeah. This is gonna be a big question in the next couple of years. It’s quite difficult to estimate exactly how much power is gonna be needed. The International Energy Agency has estimated that the AI industry in general is gonna consume at least 10 times its 2023 power demand by 2026, so that’s really a huge jump. And they need this power because generative AI systems in particular are just hugely power-intensive. It involves the crunching of enormous volumes of data, and that just requires a lot of energy to do.

Sonja Hutson
Are these data centres that are needed to power AI, will they sort of just be connected to the same electric grid that you and I use?

Camilla Hodgson
Yeah, this is one of the major challenges. And this is kind of a two-fold problem. One is the actual generation of electricity. Do we have enough electricity to go around? The second issue, and this is what seems to be the bigger bottleneck at the moment, is actually the transmission, so connecting up facilities with power, making sure all the transmission lines are in place. That transmission bottleneck is what’s causing a problem in some places. And really to solve that, it just requires more infrastructure. Then that takes time. And it also often comes with some knotty bureaucratic planning hurdles that you have to get over.

Sonja Hutson
Well, how are AI companies and power providers trying to fix some of those issues then?

Camilla Hodgson
It’s interesting. There’s a patchwork of things going on. So it’s things like planning for new transmission lines, planning for new renewable energy projects. The problem with that is just that it takes time. It’s not something that power companies can just do kind of on their own. There are local officials, government officials to talk to. There are local communities that will have opinions. And then separately, Big Tech companies are investing money in renewable energy projects. And so both of those things, the power generation and the transmission are key parts of the solution.

Sonja Hutson
Yeah. And again, all of those projects take time, like you mentioned. So it seems to me like AI companies and power providers are in a race with the development of this technology.

Camilla Hodgson
I think so. The people that I’ve spoken to over the last few weeks have said this is really a problem that needs to be solved and kind of everyone wants to solve it. It’s in everyone’s interests that new technologies don’t put extra strain on the grid. And on the flip side, if it isn’t addressed, then there is gonna be a limit to how much generative AI can be deployed. There just is a physical limit to how much power we have available and to how much the grids that transmit electricity around can withstand. So there are kind of physical limits here that everyone is trying to solve.

It’s not like we’re about to have blackouts tomorrow, I don’t think. We all hope. It’s more like there are all of these growing demands on the grid and generative AI has kind of popped up as a really, really large and definitely growing demand that maybe wasn’t factored in a couple of years ago.

Sonja Hutson
Camilla Hodgson is a San Francisco correspondent for the FT. Thanks, Camilla.

Camilla Hodgson
Thank you.

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Sonja Hutson
You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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