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Booming demand for artificial intelligence is encouraging major technology companies and their suppliers to explore converting old power plants and industrial facilities into data centers.

Microsoft, Google and Amazon are investing billions of dollars in building data centers to run cloud computing and AI services. However, it is becoming increasingly difficult to find suitable locations with sufficient power supplies for the power-hungry facilities.

Many data center markets are “severely constrained in terms of land availability and power supply,” which in turn has fueled interest in smaller markets and “more complicated locations” such as old power plants, says Adam Cookson, head of land transactions for the EMEA data center advisory group at real estate firm Cushman & Wakefield.

There are “increasing opportunities” for the owners of such assets, he added.

Daniel Thorpe, head of data center research at real estate group JLL, said developers of large data center sites would look for locations including “infrastructure sites or power plants.”

“Typically, it’s a large ‘hyperscale’ facility, equivalent to a power plant,” he added, referring to the largest cloud computing providers such as Microsoft, Amazon and Google.

In parts of the US and Europe, coal-fired power plants are being retired but may have the characteristics needed for a data center campus. For example, industrial sites are typically designed for high power consumption and may have power transmission infrastructure and be close to a water source.

Microsoft plans to build data centers on the sites of the old Eggborough and Skelton Grange power plants near Leeds in the north of England; construction on Eggborough is scheduled to begin in 2027. Amazon, on the other hand, is planning a campus on the site of the old Birchwood power plant in the US state of Virginia.

According to a person familiar with the matter, at least one other similar power plant deal is currently being negotiated in Europe.

The technology industry warns that limited electricity availability threatens to slow the expansion of AI. In addition, other requirements, such as sufficient fiber optic connectivity, are further shrinking the pool of potential locations for new data centers.

This is driving interest in less traditional options, analysts said. The diverse requirements of AI workloads offer the opportunity to locate data centers in less centralized areas, further away from major data centers, because “latency,” or the time it takes to send data and receive a response, is less important for training AI models.

Repurposing sites could also be an option. “We are seeing increasing activity from owners of industrial and energy assets, such as private equity groups, who are interested in partnering to convert the assets into data centers,” said Rahul Mewawalla, CEO of Mawson Infrastructure Group.

Virtus Data Centres, in which Macquarie Asset Management holds a minority stake, recently acquired two sites in the German capital Berlin, part of which was formerly a solar farm, as well as an old wartime munitions factory in the UK. The company plans to convert the sites into data centre campuses by 2026.

Thor Equities Group recently acquired a former manufacturing facility in Georgia that, according to Chairman Joe Sitt, is “equipped with transformers, water, wastewater and natural gas infrastructure” and “well suited for data center development.”

The trend reflects the efforts of the power-intensive Bitcoin mining industry, which is trying to find new uses for unused industrial sites, including old aluminum smelters.

Some warned that such conversions could be a lengthy, costly and bureaucratic process and would not always be practical if a power plant was already disconnected from the grid and not taken into account by the local operator.

“It will not be easy for the utility to flip the switch and turn the power back on,” says Mark Dyson, executive director of the carbon-free electricity program at the Rocky Mountain Institute think tank. “These challenges have come up in our discussions with the companies.”

Thorpe of real estate group JLL said: “Much depends on the specifics of the location, the costs of conversion, the scarcity of land and the prices of land.”

RMI research has shown that renewable energy could be located in parallel with existing fossil fuel power generation and, if more economical, fed into the grid via the plant’s existing connections.

Any surplus power generated – grid-connected devices can only contribute so much energy to the system – could theoretically be used to power a local facility, such as a data center.