Data Center Industry in Chile: Opportunities and Challenges

The data center industry in Chile has grown exponentially over the last few years, as it has demonstrated competitive advantages that make investments in infrastructure and data processing attractive: according to the Chilean Ministry of Science, Technology and Innovation (the "Ministry of Science"), Santiago de Chile is the first city in the world in terms of connectivity and fiber optics, the second in Latin America in terms of markets with access to the cloud, and Chile is the third country in the world with the best access to high speed internet.[1] In the digital age and with the rise of AI development, data center infrastructure is becoming increasingly important, and countries such as Chile are starting to attract the attention of major developers in this industry.

The development of data centers faces a number of challenges in terms of technology, energy, environmental and social impact.

Technological growth, the digital economy and the democratization of AI have created the need for more and larger data infrastructure. As a result, data centers have become more specialized in the design and operation of servers and IT equipment, which in turn has increased power and energy requirements. Energy is becoming a key factor in the development of the data center industry.

The existence of robust and stable electricity infrastructure, which allows a continuous supply in the context of 24/7 operations, represents a significant factor in investment decisions within this industry. In light of the challenges currently facing the national electricity system in terms of capacity, resilience and reliability, the increase in these projects underscores the necessity for continued advancement in the development of transmission as an enabling sector.

By way of comparison, countries with developing and expanding data center markets are already experiencing significant increases in energy consumption, with a clear impact on the operability of their networks. The data center industry in Ireland has come under immense scrutiny. By 2022, data centers will consume 18% of the country's electricity, up from 5% in 2015. In response, EirGrid, Ireland's national grid operator, has stopped providing connections to facilities in Dublin. The de facto moratorium means that EirGrid will not provide any new connections until at least 2028, and will only consider applications on a case-by-case basis[2].

The energy, environmental, and social challenges also create significant opportunities for Chile. The country benefits from comparative advantages such as high-quality telecommunications infrastructure and favorable atmospheric conditions, with low temperatures and humidity for much of the year, ideal for energy-efficient technologies like 'free cooling'. Additionally, Chile offers a clear regulatory framework, with ongoing legislative reviews aimed at expediting environmental assessments, and it is advancing an energy transition agenda. These factors together create an attractive environment for investors and data center developers focusing on sustainable resource management technologies.

Building upon the aforementioned, the significance of digital infrastructure has already been recognized as a national priority. In May 2024, the Ministry of Science introduced the 'National Data Centre Plan,' aimed at accelerating US$2.5 billion in investments by fostering a sustainable industry.

The National Data Center Plan seeks to gather information through the participation of the private sector, civil society and experts, in three stages: (i) with industry, ‘working sessions will be held with the 13 data center companies operating in Chile to explore in detail the investment opportunities in the sector, including emerging technology trends and specific needs for infrastructure, services and energy and water consumption’; (ii) with civil society, ‘we will work with communities that live with data centers and NGOs specialized in water issues to collect the socio-environmental impacts of the industry and analyses measures to ensure the territorial relevance of the projects planned for the next 6 years’; and finally (ii) with experts, through ‘representatives of national research centers and academic and governmental specialists from Norway and Spain. The objective is to obtain a technical, specialized perspective and international benchmarking on the deployment of new projects in Chile’.[3]

In this context, expert legal advisors must play an important role. It is clear that strategic environmental assessment is critical. Recent experience shows that flagship projects often fail in their original designs or are abandoned due to a lack of effective environmental assessment. Furthermore, from a contractual point of view, certain models allow integrating needs and solutions, diversifying risks of non-core operations into specialists, and providing financial tools to free up resources for business investments. This is a powerful tool to structure the development of data infrastructure.

We are excited to see the rapid growth of the data industry in Chile. However, we also recognize the need for the State, in collaboration with the private sector and civil society, to address the challenges hindering the progress of these projects and to capitalize on Chile's unique strengths in developing the industry of the future.