Building a data center economy: Microsoft’s Mount Pleasant project could be game changer for Wisconsin

Jul 28, 2024 11:00 pm

Learn more about:

Last updated Aug 1, 2024 10:19 am

Already a subscriber? Log in

To continue reading this article ...

Subscribe to BizTimes today and get immediate access to our Insider-only content and much more.

Learn More and Subscribe Now

Critical Milwaukee and Southeastern Wisconsin business news and analysis updated daily.
16 issues per year delivered in print or digitally
Unlimited access to all insider only content on our website, on any device.
Free email alerts.
Extra bonus issues (STUFF and Giving Guide)
Discounted in-person event registration

Click here to purchase a sharable paywall bypass link for this subscriber-only article.

Microsoft’s $3.3 billion investment to build an artificial intelligence data center campus in Mount Pleasant is being touted by economic development officials and business leaders as a watershed moment for Wisconsin. The investment, to be made now though the end of 2026, was announced in May, along with several corresponding community partnerships involving the Redmond, Washington-based tech company. Microsoft has more than 300 data centers around the world, but its Mount Pleasant campus will be among the most cutting-edge facilities the company has ever built. Designed to support Microsoft’s cloud and artificial intelligence infrastructure, the data center project will create 2,000 union construction jobs, according to an announcement from Gov. Tony Evers’ office. A separate announcement from the White House said the project will create another 2,000 permanent jobs over time. “We are going to be building among the world’s most advanced AI and cloud data centers that you will see anywhere,” said Brad Smith, vice chair and president of Microsoft, during a press conference held earlier this year. Microsoft declined to answer questions or make a company representative available for this story. [caption id="attachment_594375" align="alignnone" width="1280"]

Brad Smith[/caption] The complex is being built on land where Foxconn had planned to build a massive LCD screen manufacturing complex. Originally touted as a $10 billion project that would create 13,000 jobs, Foxconn’s development in Mount Pleasant has been far short of those plans and much of the land where it had planned to build remains vacant. While state leaders have initially focused on the financial investment from Microsoft – as well as the potential job numbers – the impact the data center could have on Mount Pleasant and the greater southeastern Wisconsin region could be even farther reaching. In addition to its financial investment, Microsoft will help upskill businesses and workers throughout southeastern Wisconsin. Through a partnership with Green Bay-based venture capital firm TitletownTech and the Green Bay Packers, Microsoft is building a manufacturing-focused AI Co-Innovation Lab at the University of Wisconsin-Milwaukee. The lab is the first of its kind in the United States, according to Evers. Microsoft also forged partnerships with Madison-based startup accelerator gener8tor and Gateway Technical College, both aimed at upskilling the state’s workforce. The company hopes to train more than 100,000 Wisconsinites in artificial intelligence by 2030. “This isn’t just about building a building, and it’s not just about the manufacturing jobs of today,” said Smith. “More than anything, this project is about using the future of AI to fuel the future of manufacturing companies and jobs and skills across the state of Wisconsin and around the country.”

Inside a data center

Microsoft’s data centers have several dedicated buildings that help the entire operation run smoothly. The heart of a data center is the server room, home to the cloud’s computing and storage capacity. Hundreds of server racks are equipped with compute blades that help run programs like Microsoft 365 and Azure, a cloud computing platform. High-capacity fiber optic network switches move data to and from the server blades. That data is then transferred by higher capacity network switches to and from each of the server rooms to a core data center network. The core data center network is connected by hundreds of thousands of miles of fiber optic and subsea cable to Microsoft’s global network of data center regions, where all data is stored securely. Within the data center’s operations room, trained technicians – including cybersecurity experts and cross-company engineering teams – and artificial intelligence monitor hundreds of thousands of critical data points, including power, cooling and security. Azure AI uses machine learning to review those same data points, as a method of predictive monitoring. [caption id="attachment_594380" align="alignnone" width="1280"]

Renderings of the new Microsoft Data Center[/caption] Microsoft data centers also contain a “circular center,” where decommissioned servers and hardware components are processed to be recycled. High-efficiency evaporative cooling air handlers are placed throughout the data center campus, allowing the facility to use the energy it needs while reducing its environmental impact. The company is constantly looking to innovate and implement new data center technologies. It has twice in recent years lowered a data center to the bottom of the Atlantic Ocean to gauge the feasibility and practicality of underwater operations. Historically, high-tech data centers that focus specifically on the cloud and AI – like the one under construction in Mount Pleasant – have been built on the coasts, in proximity to the nation’s major tech companies. But that doesn’t mean Wisconsin is new to the fast-growing data center market. Milwaukee-based Potawatomi Ventures, formerly known as the Potawatomi Business Development Corp., broke into the data center market more than a decade ago when it launched a subsidiary known as Data Holdings, which operates a 50,000-square-foot data center on West Highland Boulevard on the west side of Milwaukee. “We’re only less than a millisecond away from Chicago, (via) open fiber. Wisconsin has always been a legitimate place to put data centers and be very well connected to the internet, but it’s taken a long time for people to realize that,” said Ryan Brooks, general manager of Milwaukee-based Data Holdings. [caption id="attachment_594382" align="alignnone" width="1280"]

Ryan Brooks[/caption] Construction of a data center involves the inclusion of several redundancies, like backup generators and battery power systems, in case power is lost. “It has to be able to survive anything that you can think of,” said Brooks. “In our world, if something can happen, it’s just a matter of time. It’s the data center version of Murphy’s Law.” Wisconsin’s cooler climate is a benefit to data center operators. During the winter months, companies can take advantage of lower energy costs since they don’t need as much power to cool equipment. That could be of particular interest to Microsoft as the operator of an AI-focused data center that will require substantially more energy than traditional data centers facilities. Brooks estimates that a typical sever cabinet, which at Data Holdings’ Highland Boulevard facility can hold up to 42 servers, uses the same amount of power as a single household. Meanwhile, a server rack being used for an AI application uses the same amount of power as 30 households. “Adding the electrical power and then just getting the (AI) chips themselves? Very difficult,” said Brooks. “Everyone wants them. It’s like a gold rush.” A particularly exciting component of the Mount Pleasant project is the involvement of local vendors who are all needed to build the campus, he said. Vendors who make products like electrical and switch gears are all critical to the construction process. Brooks is also hopeful that Microsoft’s expanded presence in the region will help retain technical talent, a challenge that companies like Data Holdings have been struggling to address. He said it has been “very disappointing” to see well-trained technical workers leave Wisconsin to work on the coasts for giants like Microsoft. [gallery columns="1" size="full" td_select_gallery_slide="slide" ids="594370,594372,594373,594369,594371"]

Energy concerns

Among the biggest concerns regarding data centers is the sheer amount of energy needed to power them and the possibility of draining resources from an already burdened energy grid. By 2030, data center power consumption in the U.S. will be double its 2022 level of 35 gigawatts, according to a report from commercial property consultancy Newmark. One gigawatt is equal to 1 billion watts. Compare that to the average lightbulb, which uses about 20 watts of electricity when turned on. In addition to electricity, data centers need mass amounts of water to cool servers. Microsoft consumed 6.4 million cubic meters – equal to 6.4 billion liters – of water in 2022, primarily for its cloud data centers, according to its annual sustainability report. The report also says the company aims to be “water positive” by 2030, meaning it would replenish more water than it uses. Milwaukee-based WEC Energy Group, the parent company of We Energies, has been working closely with Microsoft to prepare for the Mount Pleasant data center’s energy needs. We Energies is aware of Microsoft’s energy plans and goals for at least the next decade, according to Dan Krueger, executive vice president of planning at WEC Energy Group. Part of what attracted Microsoft to Wisconsin was WEC Energy’s “aggressive” carbon reduction goals, Krueger explained. The utility company aims to reduce carbon dioxide output by 80% – from what it was using in 2005 – within the next six years. “Like with any customer, if you give us enough time and runway, we’ll make sure we have enough power to meet your needs,” Krueger said. Microsoft’s energy usage has increased substantially within the last year. In fiscal year 2023, the company reported using 24,007,868 megawatt hours of power, up from 18,644,872 megawatt hours in 2022. The bulk of the energy the company used last year, 23,567,502 megawatt hours, came from renewable electricity, according to Microsoft’s most recent sustainability report. By next year, Microsoft plans to shift to a supply of 100% renewable energy. By 2030, the company aims to be carbon negative, which means it will remove more carbon dioxide from the atmosphere than it emits. Once Microsoft becomes carbon negative, the company says it will continue removing from the atmosphere all carbon it has emitted since its founding in 1975. The company plans to do this by 2050. WEC Energy and Microsoft are currently working to determine the rate the company would pay for its energy usage in Mount Pleasant. We Energies expects to bring final tariff proposals to the state Public Service Commission for approval this summer. The utility company is expecting load growth of between 4% and 5% by 2028, thanks in part to Microsoft’s entry into the region. “We think, starting in the latter part of this decade, our load growth between Microsoft and a lot of other people coming in here, is probably going to see 5% growth,” said Krueger. [caption id="attachment_594378" align="alignright" width="300"]

Dan Krueger[/caption] We Energies’ peak demand is 5,000 megawatts (5 million kilowatts or 5 billion watts). Combined with Green Bay-based Wisconsin Public Services’ peak demand in northeastern and north central Wisconsin, that total can jump to a high of 8,000 megawatts. The peak is the most energy being used at any given time. Adding up the different levels underneath the peak is called the load, or all the megawatt hours that are used at any given interval of time, with the cap being 8,000 megawatts. Increased demand for energy, thanks to Microsoft, could raise concerns of increased energy rates, but Krueger doesn’t expect Microsoft’s energy usage to have an impact on rates for other customers or on how accessible power is throughout the region. “I have never encountered a customer, ever, more committed to making sure their presence has positive impact,” said Krueger of Microsoft. “They don’t wish for anyone to pay anything due to their presence.” It’s still unclear what kind of additional infrastructure support might be needed as more phases of the Mount Pleasant data center are completed. We Energies will be closely watching to see if the data center spurs additional development that could further increase the demand for energy, what Krueger refers to as a “shimmer effect.” “If we observe an escalating level of demand and load because we suspect more people are engaging servers for AI, then we’ll begin to react,” said Krueger.

Microsoft in the Midwest

Asked what impact the Mount Pleasant data center might have on the community, Ryan Harkins, senior director of state affairs and public policy at Microsoft, pointed to the company’s 14-year partnership with the City of West Des Moines, Iowa, as a comparable example. West Des Moines is home to an Azure super computer that Microsoft built in 2012. Its users include San Francisco-based AI research company OpenAI. Microsoft is currently planning a sixth data center in West Des Moines on about 102 acres of land. Altogether, the company owns approximately 1,200 acres of land in the city and has made $6 billion worth of investments. West Des Moines Mayor Russ Trimble – who happens to be a Milwaukee native – took public office around the same time Microsoft expressed interest in West Des Moines. Trimble has served as mayor since November 2021, and before that, he served on the city’s common council for 15 years. [caption id="attachment_594381" align="alignright" width="300"]

Russ Trimble[/caption] “We had a long courtship, if you will,” Trimble said of Microsoft. “We were competing against other places in Iowa as well as other places around the nation.” Learning Microsoft was considering West Des Moines as a data center site was “literally a game changer,” he said. Not only would the city get to drastically expand its tax base, but it would also get hundreds of jobs. Microsoft is currently the largest taxpayer in West Des Moines. Most of Microsoft’s data centers in West Des Moines have been built out in six phases, with each phase including construction of a new building. Each phase, or building, of each data center project has a taxable valuation of approximately $250 million, according to Trimble. “(These projects) opened up thousands of acres for development in other parts of the city that otherwise, the city taxpayers would have had to pay for. I’m not sure how we would have been able to do that,” he said. West Des Moines’ data centers have such a high taxable valuation that the debt service levies the city has applied for have allowed for smaller school districts to be able to remodel or build entirely new school buildings, Trimble said. Along with an expanded tax base, West Des Moines’ data centers have created 400 new jobs so far. Construction work on each new data center has been continuous, providing the community with hundreds of additional jobs. “These data centers have just gone on and on,” said Trimble. “For other projects in town, it’s difficult for people to find electricians and plumbers.” He explained that skilled laborers, often with backgrounds in computer science and technology, are also needed to keep the buildings up and running. Having Microsoft in West Des Moines has helped attract the outside talent needed to keep up with each data center’s operations. “I think having (Microsoft) here, it’s helped to diversify our economy and provide high-quality jobs in the tech industry,” said Trimble. “It says to the young people, ‘We are a progressive city with great jobs; come live in the city of West Des Moines.’” [caption id="attachment_594376" align="alignnone" width="1280"]

Construction is underway on Microsoft’s data center in Mount Pleasant. These photos show the progress on the site as of May.
Below: The Microsoft data center project is expected to require 2,000 construction jobs.[/caption]

All in on AI

Driven largely by development of artificial intelligence tools and programs, the ongoing boom in data center construction is having a positive impact on several prominent Wisconsin companies. In June, Johnson Controls, which has its operational headquarters in Glendale, created an entirely new business unit geared towards data centers. Called the Data Center Solutions Business, the segment is focused on offering the company’s data center solutions to customers across the globe. In fiscal year 2023, Johnson Controls sold $2 billion worth of products to data centers. In just the first half of 2024, the company’s orders for data center products have surpassed the orders booked for all of 2023. Johnson Controls has been focused on creating technology that supports air-cooled and water-cooled chillers, while investing in research and development teams that can test and demonstrate the equipment. “Johnson Controls plays an important role in serving the rapidly growing data center market,” said George Oliver, chairmand and chief executive officer, during the company’s most recent earning’s call. “We provide cooling needs for the top hyperscale and co-location data center customers. The demand for data centers is accelerating globally with the next generation of data centers projected to be designed for more than one gigawatt of power consumption.” Racine-based Modine, a manufacturer of thermal management and ventilation solutions, is also seeing a boost in business thanks to data centers. For fiscal year 2024, Modine recorded $2.4 billion in net sales, up 5% from the prior year, driven largely by its data center business, according to a May securities filing. “We delivered another year of record sales and adjusted EBITDA, led by our data center business, with revenues increasing 69% from the prior year,” said Neil Brinker, president and CEO of Modine. The company, citing a strong backlog for its data center products, is working to add additional data center manufacturing capacity in the U.S., Canada and the United Kingdom to meet customer demand. Town of Genesee-based Generac, a manufacturer of generators and energy technology solutions, is another local manufacturer looking to tap into the growing data center market. With an aging power grid the company argues is not prepared to handle future energy needs, Generac sees an opportunity to grow its natural gas generator line to potentially serve smaller-sized data centers. There could also be an opportunity for Generac to win more business from grid operators looking to add energy storage options to support increasing power demand. “It’s really a supply-demand imbalance that’s going to continue to grow,” said Aaron Jagdfeld, CEO of Generac, during the company’s quarter one earnings call. “On the supply side, we’re dealing with replacing traditional 24/7 thermal assets like coal and gas with intermittent assets like wind and solar. On the demand side, we’re racing to electrify everything, and we’re adding all of this additional load profile from data centers. It’s just not a great setup for power quality in the years ahead.”

Attracting and upskilling talent

Leaders at TitletownTech and UWM say Microsoft’s education-focused initiatives will help shine a brighter light on the innovation and entrepreneurship taking place in the state. Microsoft’s AI Co-Innovation Lab, which is being built within UWM’s Connected Systems Institute, will give businesses a space to build, develop, prototype and test their AI-centered solutions. “This could become a destination for (entrepreneurs) to come in and incubate their ideas,” said Joe Hamann, executive director at UWM’s Connected Systems Institute. [caption id="attachment_594379" align="alignright" width="300"]

Joe Hamann[/caption] Microsoft has six existing Co-Innovation Labs around the world, in Redmond, Washington; San Francisco, California; Munich, Germany; Shanghai, China; Kobe, Japan; and Montevideo, Uruguay. Its newest lab in Milwaukee will be the first dedicated to the manufacturing industry – and the first located on a university campus. With plans to host 60-plus unique industry visits each year, the lab will help businesses with everything from early-stage testing and design evaluation that can be done in a single day, to more focused programs that could last between three to six weeks. This will be Microsoft’s first Co-Innovation Lab dedicated to the manufacturing industry. “We’re not just using technology for technology’s sake,” said Hamann. “We’re using it to address known business problems.” Microsoft’s plan for the new AI Co-Innovation Lab also builds on an existing partnership the organization has with the Green Bay Packers and TitletownTech, which will open its first Milwaukee branch within the AI Co-Innovation Lab space. The venture capital firm will have two people working in the AI Co-Innovation Lab, serving as an extension of the team in Green Bay. Microsoft will dedicate three full-time and two part-time employees to the space. “If you’re an early-stage entrepreneur, you’re going to want to be at the center of gravity,” said Craig Dickman, managing director at TitletownTech. “I think that’s really been created by this unique partnership.” [caption id="attachment_594386" align="alignnone" width="1280"]

Craig Dickman[/caption] Through the coming years of investment and upskilling efforts focused on AI, Microsoft aims to create a “data center economy” in southeastern Wisconsin. That data center economy will not only train the workers needed to keep the Mount Pleasant data center running, but also elevate the region’s profile as a tech hub. “This project is about using the power of AI to fuel the future of manufacturing companies, jobs and skills across the state of Wisconsin,” said Smith. “That is what we’re building together.”