With FTZs, Arcadis sees Northeast leading Brazil's new data center wave

Arcadis sees Brazil as one of the main emerging markets for data centers, supported by the supply of renewable energy and the expansion of digital infrastructure. For Felipe Martinelli, Arcadis’ head of energy transition, the main challenge for the sector’s growth will be accelerating investments in power transmission.

In an interview with BNamericas, the executive said that the company is monitoring around eight data center projects in Brazil, some above 100MW, and estimates that the country’s installed capacity could triple over the next five years.

BNamericas: How is Arcadis working in the energy transition sector and its relationship with digital infrastructure?

Martinelli: Today, both the data center sector and the energy and energy transition sector are extremely strategic for Arcadis. And we look at these two segments in a very integrated way because, at the end of the day, the biggest “decision point” for a data center investor today is the availability of energy – especially renewable energy.

Within Arcadis, we work on three main pillars in the energy transition.

The first is power generation: solar, wind, in the future offshore wind, hydropower expansion and small hydropower plants. All of this is connected to the fact that Brazil has a matrix with around 90% renewable sources.

The second pillar is power transmission and storage. It is all the infrastructure needed to deliver this energy throughout the country. Today, the new trend we are looking at is batteries. We are monitoring expectations for the battery auction, including as a response to the curtailment problem.

The third pillar is what we call low carbon fuels, more related to molecules than to electrons. This includes biogas, biofuels, ethanol, methanol, biomethane, biomass, and green hydrogen. Arcadis has already developed 25 green hydrogen projects, which is quite significant considering that it is still an emerging market.

All of this is connected to the decarbonization agenda of other sectors, such as mining, industry, and transportation.

BNamericas: How does Arcadis work specifically on data center projects? You mentioned green hydrogen and the data show that both sectors have dominated the requests for connection to the national power grid.

Martinelli: Exactly, data centers and green hydrogen compete for the same electrical connection. The country needs to create public policies capable of unlocking both markets.

In the case of data centers, we work from the project’s initial phase. We help developers build the business plan: what is the best location, where there is access to the power connection, the possibility of environmental licensing, water availability, and tax benefits linked to EPZs.

After this initial decision, we moved on to engineering itself: data center size, technical specifications, equipment, power and water demand. We also followed the entire process of requesting grid access, water permits, and continued through construction and commissioning.

Today we have around eight data center projects underway in Brazil, some above 100MW.

Globally, the average size of data centers is around 200MW. In Brazil we do not yet have any of this size, except for the Pecém project, which is under construction and is expected to be the largest data center in Latin America.

BNamericas: How do you assess the growth of this market?

Martinelli: Today there is a megatrend of artificial intelligence, data security, data sovereignty, and demand for Big Data, but Latin America accounts for less than 5% of the global data center footprint. In other words, we are still irrelevant in terms of global share.

But when you ask investors what the main factor is in deciding where to invest, the answer is almost always the same: energy – and especially clean energy.

Brazil brings together exactly that: a highly renewable energy mix and an integrated transmission system, which offers energy security.

That is why we believe growth will be very fast. Our expectation is that Brazil will triple its installed data center capacity in about five years.

BNamericas: In other words, getting close to 3GW.

Martinelli: That’s it.

BNamericas: What are the main customer profiles in these projects?

Martinelli: We have a very comprehensive mix. There is the group of hyperscalers, the big technology companies, that sometimes build their own data centers and sometimes use colocation models.

The second group, and today the most relevant, is precisely that of colocation companies – operators that build and operate the infrastructure to host hyperscalers.

More recently, two new profiles have begun to emerge.

The first are energy companies that are trying to verticalize the chain and also become data center players.

The second group are private equity investors, looking at this market as a new growth front.

BNamericas: You mentioned Pecém. Is this one of the projects you are working on?

Martinelli: Yes, we are working on this project. Obviously, I cannot go into details, because the data center market is very sensitive in terms of confidentiality.

But it is a fantastic project that will change the reality of the Northeast. It is very innovative in terms of size, strategy, and implementation methodology.

BNamericas: Who is Arcadis’ client in this case? The generator, Casa dos Ventos, or the operator, Omnia?

Martinelli: Our client is Omnia.

BNamericas: Is there a trend toward decentralization of data centers in Brazil? Is it possible to move beyond São Paulo in light of issues such as fiber networks, workforce, and the consumer market/end customers?

Martinelli: Today the largest concentration remains in the Campinas–Barueri axis, because of the consumer market, the electrical infrastructure, and fiber connectivity.

But, interestingly, most of the projects we are seeing today are in the Northeast – especially Ceará, Piauí, and Maranhão. Much of this is linked to EPZs and tax benefits.

The largest component of a data center’s CapEx today is equipment, which is generally imported. So reducing the tax burden, which is possible with ZPEs, makes a big difference.

In addition, the Northeast brings together two important factors: strong availability of renewable energy and growth of submarine cable infrastructure in Fortaleza.

From the standpoint of the power system, it also helps balance Brazil’s energy mix, since today renewable generation is heavily concentrated in the Northeast and consumption in the Southeast.

BNamericas: And data centers can help mitigate curtailment for generators, with firm and uninterrupted demand.

Martinelli: Totally.

Today, many companies are being financially impacted by curtailment. Bringing power-intensive loads such as data centers and green hydrogen to the Northeast helps balance the system and gives more security to investments in renewable generation.

That is also why some energy companies are trying to move vertically into the data center sector.

BNamericas: Does your team provide consulting services for other markets in the region? How is the data center segment for Arcadis in other Latin American countries?

Martinelli: Today we operate mainly in Brazil, Chile, Mexico and Peru.

Chile has been advancing significantly, although it faces major challenges in electrical connection and environmental licensing. Mexico is also growing, especially in the Querétaro region.

In the United States, demand is absurd. We are seeing an enormous number of projects, and the Brazilian team even supports projects abroad, sharing experience.

BNamericas: Is Mexico facing difficulties with PPAs for data centers?

Martinelli: In terms of market maturity for PPAs, Mexico is still behind Brazil.

Here in Brazil we have a much more developed market for long-term contracts and access to renewable energy.

This makes the investment decision in Mexico much more difficult, because the central issue continues to be the guarantee of electrical connection and energy supply.

If they manage to move forward with this regulatory agenda, the potential is very large.

BNamericas: What are currently the main bottlenecks for the sector’s growth in Brazil?

Martinelli: The main bottleneck is not generation. It is transmission.

Brazil has an extremely robust and mature transmission system. Aneel and EPE do a very good job.

But data center projects have a very different pace from traditional generation and transmission projects.

My main concern today is: how quickly we will be able to expand transmission to keep up with the growth of data centers.

We need to create specific guidelines for electrical connection and grid expansion aimed at the data center sector, because there is a global race to bring these projects into operation quickly.

BNamericas: What is your view on the future of the sector in Brazil?

Martinelli: I think Brazil has a very big opportunity to develop a new economy.

We are able to build data centers that are more sustainable than in many other countries, and this is very valuable for international clients.

I believe we will see very strong expansion of the sector in the coming years, with job creation, attraction of investments, and advances in data sovereignty – with more and more data stored within Brazil.

(The original version of this content was written in Portuguese)