China builds underwater AI data centers at less than half price

Added: 2026-05-23

[00:00:01]Good morning.

[00:00:04]There is a race on to build data centers for artificial intelligence and it's running into a lot of problems in the United States and in Europe where contractors are bumping up against the lack of electricity to feed the data centers. There just isn't enough and local residents and politicians are mobilizing against new construction.

[00:00:27]What drives most of that political problem is that that the power demands for these data centers are putting strains on electric grids where households are already seeing big spikes in their utility bills right now.

[00:00:42]Those constraints do not exist here in mainland China where construction of the new data centers is a national level objective and electricity costs are falling.

[00:00:54]This is China's newest data center which is a project off the coast of Shanghai.

[00:01:01]It is a major engineering story. But getting deeper in, we see how the other constraints that are slowing AI data center builds in the US and Europe are not issues here.

[00:01:15]This is an underwater AI data center and this is the first in the world that's powered with offshore wind. It was launched last summer and cost $226 million to build.

[00:01:29]It's a partnership with power and engineering companies and China Telecom.

[00:01:36]There are 2,000 servers in the data center which is right next to large wind turbines offshore.

[00:01:42]Underwater data centers are cooled with seawater which dramatically reduces the power need and improves our power usage effectiveness.

[00:01:52]The PUE of a Shanghai project is 1.15, which is about 30% lower than data centers operating on land.

[00:02:03]Overall, electricity consumption drops by over 22%.

[00:02:10]And reduces to almost nothing. The need for water obviously and land.

[00:02:17]That is the thinking here for this Chinese design. It's connected directly to the wind power plants and the processing outputs are sent to Shanghai which is 10 km away.

[00:02:30]Network latency overall is 0.5 milliseconds.

[00:02:37]Microsoft was a pioneer for offshore underwater data centers. Project NATIC was a data center placed at a depth of 117 ft. That's about 35 mters off of Scotland.

[00:02:53]Researchers use nitrogen instead of oxygen.

[00:02:58]If you've got human researchers operating the equipment, they need to breathe air with oxygen. But oxygen is actually less optimal for computer servers.

[00:03:09]Getting rid of people gets rid of the need for big oxygen particles floating around. That also got rid of clumsy people who bump into systems and spill things.

[00:03:20]Microsoft's water cooled system was found to be more efficient also.

[00:03:25]And the company found that the failure rate of their offshore data center was just 1/8 compared to one on land.

[00:03:37]Microsoft also understood that putting the data center underwater next to population centers would result in the same low latency that the Shanghai project enjoys now.

[00:03:49]But nevertheless, Microsoft abandoned the plan to build more and as of two years ago had no active data centers underwater.

[00:03:59]Their chief of cloud operations and innovation said that the Microsoft program did work.

[00:04:08]Only six of the 855 servers on their underwater center broke down compared to eight out of 135 on dry land.

[00:04:20]She did not explain why the company walked away, only that they learned a lot about how to apply what they learned in other places.

[00:04:32]Shanghai is the first underwater data center powered by offshore wind. The first underwater data center for China was launched off of Hainan Island in 2023.

[00:04:46]That also was placed 35 m underwater.

[00:04:50]And that project followed testing that began two years prior in Juai.

[00:04:57]Several Chinese provinces have underwater data centers in their five-year plans, which means that this is now official policy from the top down to deploy these units at scale in lots of coastal areas here.

[00:05:13]That's a good term to know, too. A little giant is a tech or energy company usually, which is growing very fast.

[00:05:23]We wanted to return to this part because we were curious why Microsoft abandoned their plans for underwater data centers even though their own research pointed out that their NATIC program was a success. We got to wondering if it was just too expensive. The Shanghai project is the only one that has shared their cost data. It's a $226 million project with a capacity of 24 megawws.

[00:05:52]It is designed for AI workloads, big data, and the development of large language models.

[00:06:01]Compared to the construction and development costs for data centers as a whole, that Shanghai project comes in at about half.

[00:06:11]These are the cost data for a typical data center worldwide.

[00:06:16]AI intensive facilities are $20 million per megawatt. So a 24 megawatt data center on land would run over $480 million.

[00:06:29]Liquid cooling is one of the major cost drivers.

[00:06:33]Another driver is compute density which is a function of power availability.

[00:06:40]Shanghai's underwater data center solves the cooling problem and they parked it right next to a giant offshore wind farm.

[00:06:50]So the issue of robust power delivery also goes away.

[00:06:55]Shanghai's cost was $226 million which is less than half the 480 million which is the cost of a comparably sized center on land in the US or in Europe.

[00:07:12]Locating these data centers nearby available power supply is more important than the cost of the land itself.

[00:07:20]But then there's this. The electrical systems make up a substantial part of the construction budgets.

[00:07:26]Switching equipment, substations, and transformers are hard to come by. So order backlogs are going up along with prices.

[00:07:37]US tech companies have all the money in the world and they are committed to spending all of it looks like to get their data centers built. But there is a severe shortage of electrical components and half of the data centers that were supposed to come online in 2026 are either delayed or were cancelled outright.

[00:08:03]The same problem in future years. Lots of announcements but just a handful of construction projects underway.

[00:08:12]The power grid needs to be continually upgraded and expanded. Then comes all this new demand from data centers. So delivery times for transformers and switching gear are now 5 years.

[00:08:29]Data center contractors are relying on imports to make up that difference and China is where most of those imports are sourced.

[00:08:39]Builders are indifferent to the high tariffs on Chinese gear coming over because those customs charges are negligible compared to the money coming in from the hyperscalers like Amazon a Microsoft.

[00:08:53]It is ironic there that Microsoft was the first to figure out how to build data centers underwater and they showed the world the benefits of doing so.

[00:09:03]But Microsoft can't plug their underwater data centers into offshore wind farms because the United States is cancelling them all. And so Microsoft is waiting in line with everyone else for more electrical equipment to come over from China.

[00:09:21]This is Shanghai.

[00:09:23]Be good.

[00:09:29]Surely strong.