Artificial Intelligence | October 7, 2024

Sustainable data center startups in Brazil and Spain look to scale with new funding

Lynnley Browning
Guest Author

Lynnley Browning

Data centers are hot — and getting hotter. The bigger, more powerful facilities being built to support the growing development and use of artificial intelligence require more energy and water to cool their computer servers. Among those racing to make the resource guzzlers more climate friendly: startups Scala Data Centers of Brazil and Spain’s Submer.

São Paulo, Brazil-based Scala raised $550 million in structured finance from New York-based Coatue Management’s Tactical Solutions Fund and the Investment Management Corporation of Ontario, a $77 billion private investment firm. Scala will use the funds to accelerate its growth, invest in technology innovation and “maintain its commitment to sustainability.”     

Scala was established by global digital infrastructure investor DigitalBridge in 2020 to build massive “hyperscale” data centers across Latin America, where hydropower is abundant. 

Scala uses 100% renewable energy through long-term contracts, or purchase power agreements, that are backed by renewable energy certificates that certify its renewable energy use — the first Latin American data center company to do so. It is also involved in efforts to conserve Brazil’s forests, and in recent years issued green bonds that raised more than $803 million to finance its expansion in Brazil.

Scala “is at the forefront of the digital revolution in Latin America,” said Coatue’s Malachi Price

Scala’s fundraise comes less than one month after it unveiled a partnership with the government of Rio Grande do Sul, Brazil’s fifth most populous state, to build Scala AI City, a data center hub that aims to make Brazil a global hotspot of artificial intelligence. 

The project will initially provide 54 megawatts of capacity, greater than the entire markets of Argentina or Uruguay, and expand to 4.75 megawatts. It will connect via underground cable to São Paulo, Rio de Janeiro and Buenos Aires. Scala operates a dozen data centers in Brazil, Chile and Mexico, with more under construction or in development in those countries and Colombia.

Clean energy data centers

In Barcelona, Submer raised $55.5 million in a Series C round that valued it at $500 million. London-based investment manager M&G led the deal, through Catalyst, its £5 billion ($6.5 billion) purpose-led flexible private assets strategy to invest in innovative solutions to large-scale environmental and social challenges.

Mundi Ventures of Madrid and prior backers Planet First Partners, a sustainable investment firm in London, and Stockholm impact investor Norrsken VC also participated.

Submer aims to build greener data centers using single-phase “immersion cooling,” a process that consists of submerging computer components in a non-conductive liquid to cool servers. The process transfers heat from the source to the liquid. (A two-phase process involves evaporation and a second cooling, and requires more maintenance.)

With labs and R&D facilities in Houston, Sausalito, Calif., and Taipei, Submer sees “waterless data centers” using immersion cooling as a sustainable and scalable way to make AI-focused data centers environmentally friendly. Last month, Google was forced to halt a $200 million data center plan in Chile over water concerns in the parched region.

Global demand for artificial intelligence could require as much as 233 billion cubic feet of water in 2027 — six times as much as is withdrawn annually from Denmark, according to one study

“As the global demand for AI and data capacity accelerates, we see Submer’s technology as a critical solution to alleviate the intensive energy and water requirements of digital infrastructure,” M&G Global Head of Catalyst Investments Niranjan Sirdeshpande said.

The fresh funding will help Submer expand globally, with an immediate focus on the US, where it already has a gigafactory, and Asia-Pacific regions. 

Data center explosion

Giant data centers, used to train the large language models used for AI, are natural resource gobblers. Goldman Sachs says that data centers worldwide now consume 1-2% of overall power, but that the level will likely rise to 3-4% by the end of the decade. Data centers will use 8% of US carbon-emitting power by 2030, compared with 3% in 2022.

Last month, Microsoft, BlackRock and a state-backed investor from the United Arab Emirates launched a $30 billion fund to invest in data center infrastructure to feed demand for AI applications. The group hasn’t said whether it will use clean energy.  (See, “A $30 billion AI infrastructure fund led by Microsoft escalates climate questions”). Also last month, Microsoft announced a deal to restart Three Mile Island, whose partial meltdown in 1979 is the worst nuclear accident in US history, to provide energy for the tech giant’s data centers.