At the foundation of all digital services, such as cloud services, streaming platforms, and online shopping malls that we use on a daily basis, is a data center. However, it is not well known how these huge and complex facilities are structured and who builds them. Although they are vaguely called cloud infrastructure or data centers, this industry is much broader than you might think and is created by combining various fields. Recently, while working on a project with AICA, I realized that there are fewer experts in building data centers in Korea than I thought, and that most IT workers do not know much. Since I am more of a consultant when it comes to building (physical) data centers, I would like to write a brief introduction.
If you take a look at a data center, you'll see that it's an incredibly intensive industry.
Actually, I have previously written about the importance of data centers and how much electricity they consume. However, that article only talked about the data center site and power consumption, so in this article, I would like to talk about how they are actually structured.
The size and importance of the data center industry
As of 2023, the global data center market size will be approximately $215 billion (approximately KRW 287.24 trillion) . This is a huge amount, accounting for about 1% of global capital. Most of this, $160 billion, will be spent on servers, networking, and storage equipment, and the remaining $55 billion will be invested in building data center infrastructure.
The total cost of building a data center is estimated at approximately $38 million per megawatt (MW). Of this, IT equipment costs (servers, networking, storage) account for approximately $30 million per MW, infrastructure equipment costs approximately $4 million per MW, and engineering and construction costs also account for approximately $4 million per MW.
The reason Elon Musk proudly posted his data center on Twitter, and Meta, Google, Microsoft, etc. boast about the size of their data centers, is not simply because they are expensive. Of course, the more expensive they are, the more money they cost to operate, but they are also the pinnacle of cutting-edge technology in hardware, Ethernet, and power grids. Building a data center also means that they have the technology to create and operate such a wide field. Let’s take a look at what a data center is made up of.
Data center fractional cost per watt hour
1. Server and storage
Servers are the heart of data centers. By 2023, data centers will be built worldwide with an estimated 12 million servers purchased, spending $134 billion. Mid-priced servers cost around $7,000, while high-end servers can cost more than $100,000 each. Recent advances in AI are driving the need for more powerful servers. AI servers require 3-4 times more power than traditional CPUs, which has a major impact on data center design.
Storage is the role of storing information. Various types of storage are used, from large-capacity hard disks to high-speed SSDs, and are appropriately placed according to the importance of the data and the frequency of access.
2. Network equipment
Network equipment handles communication between servers within the data center as well as connections to external networks. Key equipment includes switches, routers, and load balancers.
The market size of networking equipment is estimated at about $20 billion. AI workloads are particularly bandwidth-intensive, requiring hundreds of processors to be connected at gigabit throughput. This increases the demand for more powerful and efficient networking equipment. Cables that are thicker and heavier than you might think are used, not the routers or home internet cables we think of.
3. Power supply system
Data centers consume a huge amount of electricity. In fact, there was a case in South Korea where the entire nation suffered inconvenience due to a data center problem. It was an incident where Kakao service was down due to a fire at the SK C&C Pangyo Data Center on October 15, 2022. The cause of the fire at the time was said to be a lithium-ion battery. Yes, that's the same one used in electric vehicle batteries. You might wonder why there's a battery in a data center, but it's called a UPS (Uninterruptible Power Supply), and it's a facility like an auxiliary battery that supplies stable power when the power is cut off due to a power outage or natural disaster.
Uninterruptible power supply (UPS): Protects servers from power outages. The UPS market size is estimated at $7-8 billion , which includes a significant amount of replacement revenue.
Backup Generators: Provide power to the entire data center during a prolonged power outage. A typical diesel backup generator costs $300,000-$450,000 per MW. The generator market size is estimated at $4.5-5.5 billion (approximately KRW 7.348 trillion) .
Switchgear: Equipment that controls, protects, and isolates electrical equipment, with an estimated market size of 4-5 billion dollars (6.68 trillion won) .
Power Distribution Unit (PDU): It distributes power to server racks. The market size is estimated at USD 2.5-3.5 billion (KRW 4.676 trillion) .
4. Cooling System
Efficiently removing heat generated by servers is a key to data center operation. For every megawatt of power supplied to a data center, approximately 285 tons of cooling is required.
Chiller: The cost of a 285-ton chiller is approximately $225,000-$250,000. The market size is estimated at $1.8-$2.2 billion (approximately KRW 2.9392 trillion) .
Cooling Tower: A single cooling tower can provide heat rejection for 3-4 MW of power supply. The market size is estimated at USD 400-600 million (KRW 801.6 billion) .
Computer Room Air Handling Units (CRAH): A major piece of thermal equipment in the “white space” of a data center. The CRAH and related equipment market is estimated to be worth $4-5 billion (KRW 6.68 trillion) .
Recently, as the density of servers increases, the existing air cooling method is reaching its limits. Accordingly, liquid cooling technology is receiving attention. In particular, due to the increase in AI servers, new technologies such as rack-level liquid cooling systems and immersion cooling methods are being introduced.
5. Backup and Security System
Data centers have various systems for physical security and data security. CCTV, biometric access control systems, firewalls, encryption systems, and other layers of security devices protect data centers. In fact, this is close to hiring the form of existing security companies, and is essential for data center construction, but it is difficult to see it as a data center industry. However, it is important. Among all attacks, there is nothing more certain than physical attacks...
From episode 8 of the tvN drama <Thank You>: The actions of a technology leaker who physically destroys the server room...
Data center construction process and participants
1.
Design phase: A professional engineering firm designs the data center. They comprehensively plan electrical, mechanical, cooling, and network systems. Design costs typically account for 4.5-6.5% of the data center infrastructure cost.
2.
Construction Phase: Once the design is complete, construction is undertaken by a special purpose contractor. They oversee all aspects of the construction project, including project management, managing professional contractors, purchasing materials, and renting equipment.
3.
Equipment Supply: Various equipment manufacturers supply servers, network equipment, power equipment, cooling systems, etc. They have expertise in their respective fields and provide products that apply the latest technology.
4.
Operations and Maintenance: Finally, specialized operations personnel manage and maintain the data center. They monitor and manage the data center 24 hours a day, 365 days a year to ensure it is operating optimally.
New data centers with a capacity of 5-6 GW are being built annually, creating a market size of 48-57 billion dollars (approximately 76.152 trillion won) . In Korea, a large-scale national data center has been built in Gwangju and is currently being operated in cooperation with AICA. It is a large-scale data center with a capacity of 6 GW, even by global standards.
The advancement of AI presents new challenges to data centers. The high power consumption and heat generation of AI chips are testing the limits of existing data center designs. For example, the current generation of AI chips, Nvidia’s H200, consumes 33 kW per rack, while the next generation, the GB200, is expected to consume up to 107 kW per rack. This is significantly higher than the average rack power density of 12 kW in existing data centers.
Characteristic
Liquid cooling (liquid cooling)
Air Cooling (Air Cooling)
Energy efficiency
Height
Lowness
Massive processing power
Excellent (suitable for AI server deployment)
Limited
Heat removal efficiency
Very high
Relatively low
Initial Cost
Height
Lowness
System Complexity
Complexity (requires pumps, filters, controls)
Relatively simple
Installation and deployment time
Long
Short
Risk of leakage
There is
Doesn't exist
Space efficiency
Height
Low (needs more space)
Maintenance
Complex and requires expertise
Relatively simple
Scalability
High (supports high density servers)
Limited
Suitable environment
Large-scale data centers, AI workloads
Mid-sized data centers, general workloads
Accordingly, more efficient cooling technology and more stable power supply systems are required. In particular, liquid cooling technology is receiving attention because it has a much higher heat removal efficiency than air cooling. While the focus was on cooling through air, that is, air cooling, liquid cooling is receiving more attention recently. The reason is simple. It has a lower risk of fire and is also more effective. While air cooling is prevalent now, liquid cooling will likely become a necessity rather than a consideration as chipsets that generate higher power and heat are set in the future.
The environmental impact of data centers is also an important topic. Since data centers consume a huge amount of electricity, efforts are being made to improve sustainability, such as using renewable energy and improving energy efficiency. Some companies are already building data centers that run on 100% renewable energy, and are exploring innovative solutions such as using waste heat to heat nearby areas. For example, if you build a data center, GW of electricity will be sucked in just for the data center, so if you live in a densely populated area or have insufficient power grid infrastructure, you may experience accidents such as large-scale blackouts.
Data centers continue to grow.
Data centers are emerging as important real estate assets beyond mere technology infrastructure. Sites with large power supplies, low risk of natural disasters, and close proximity to major network connection points are preferred as data center locations. These special requirements make securing suitable sites a key challenge for data center development. Meanwhile, data center REITs provide investors with an opportunity to participate in this growing industry. Data center REITs offer a unique combination of stable rental income and high growth potential, which sets them apart from traditional real estate investments.
In particular, with the development of data-intensive technologies such as cloud computing, AI, and the Internet of Things (IoT), the demand for data centers is rapidly increasing, and data center real estate is emerging as a new core sector in the commercial real estate market. This trend is expected to continue, with data center real estate expected to become a significant part of real estate investment portfolios.
In conclusion,
Data centers are an industry whose scale is hard to guess before you see them in person. However, once you experience them or learn about their scale, there is no other industry as attractive as this one. Various companies are jumping into this data center construction industry and are considering global expansion. Since the technology and capital barriers are very high, it is actually a field that existing companies have a firm grip on, but as AI data centers grow in size and require more conditions, there is more to eat. Personally, I hope that various startups will emerge as major players.
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