Israeli Real Estate Developers Eye AI Boom Via Server Farms

Israeli real estate developers are increasingly entering the burgeoning field of artificial intelligence infrastructure by investing in server farms, mirroring a global trend. This expansion is driven by the immense demand for computing power required to train and operate AI models. Notable figures like Rami Levy and Eitan Yohanannof, CEOs of supermarket chains, are exploring or have already committed to developing server farms in locations such as Kiryat Gat, Yavne, and Afula. Singer Omer Adam is also involved through his partnership in "Anan" company, which is providing computing infrastructure for a US firm in Afula.

The Israeli government recognizes the strategic importance of AI infrastructure, with a February decision mandating expedited approval for server farms designated as national infrastructure. The National AI Directorate will prioritize projects specifically for AI development. However, this rapid growth faces a significant hurdle: electricity infrastructure. In July, the Israel Electric Corporation (IEC) imposed a 140-day moratorium on new server farm connections due to an overwhelming surge in demand, with applications totaling approximately 27,000 megawatts, three times Israel's total electricity consumption.

Server farms are massive electricity consumers, not only for computation but also for cooling systems. A medium-sized facility can consume as much power as a small city. To manage this demand and ensure grid stability, the IEC has proposed a new framework limiting new server farm connections to 1,000 megawatts over the coming years, plus an additional 300 megawatts for specific criteria. This allocation, added to existing commitments, aims to bring server farms to about 20% of the national electricity consumption by 2030. The framework also caps individual server farms at 200 megawatts and imposes stringent financial and planning requirements on developers to ensure project viability.

These measures aim to filter out less serious investors and ensure that only well-established developers proceed, requiring them to provide significant financial guarantees and meet strict timelines. Developers will also need to demonstrate backup power capabilities. The push for local AI infrastructure is seen as crucial for Israel's technological competitiveness, attracting investment, and enhancing national security by enabling domestic processing of sensitive data. However, concerns remain about the potential impact on electricity prices for all consumers and the strain on the national grid, especially given the long lead times for building new power plants and transmission lines.