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We’ve previously reported on Sakura Internet’s active involvement in the AI data center business within Japan. Now, another domestic company has made a significant move in this space.

Japan Policy Investment Bank and Mizuho Bank Invest in Highreso

The Japan Policy Investment Bank and Mizuho Bank, among others, have announced a combined investment of 10 billion yen in the startup Highreso. Japanese companies have been insufficiently providing the high-performance computing infrastructure necessary for AI development, leading to a heavy reliance on overseas services. This investment, which is unprecedented in scale for a startup, aims to bolster domestic AI development.

Highreso operates a GPU-dedicated data center and provides a cloud service called “GPUSOROBAN.” The company has established Highreso Kagawa Co., Ltd. in February 2024 to open a generative AI data center in Kagawa Prefecture.

Highreso Kagawa is a special purpose company established to open a generative AI data center in Kagawa Prefecture. The company plans to develop the data center by partially renovating existing research facilities like “RIST Kagawa” and the gymnasium of the former Ayakami Middle School.

Amid concerns about the excessive concentration of data centers in metropolitan areas, this project aims to reduce development costs by utilizing existing regional facilities and provide services to a wide range of domestic businesses.

The project has been certified under the Ministry of Economy, Trade and Industry’s cloud program and is expected to utilize approximately 7.7 billion yen in subsidies from NEDO (New Energy and Industrial Technology Development Organization).

Highreso CEO Yoshiyuki Shikura expressed his enthusiasm, stating, “We will build a solid domestic infrastructure from the regions and revolutionize the AI industry.”

Moving Away from Overseas Dependence

Until now, Sakura Internet has been the most prominent domestic company actively involved in the GPU cloud service business. The announcement of this new domestic company’s plans has garnered significant attention. It remains to be seen whether Highreso’s project will be a game-changer in reducing dependence on overseas services. We will continue to follow the progress of this project and also provide updates on Sakura Internet’s efforts.

At the end of August, the world’s attention was drawn to the earnings announcement of US semiconductor giant NVIDIA. Around the same time, there were new announcements regarding the domestic semiconductor industry in Japan. In this article, we will introduce these two topics.

1. NVIDIA’s Q2 Earnings Announcement

NVIDIA, a global leader in AI semiconductors, announced its earnings for the second quarter (April-June) on August 28th, reporting record-high revenue and net income.

Revenue surged 2.2 times year-on-year to $30.04 billion. In particular, the data center segment, which houses most of its AI products, generated $26.272 billion, accounting for 87% of the total.

The importance of data centers has increased significantly with the advent of generative AI. It is said that generative AI requires 10 times more power than a typical search to answer user queries. Additionally, data centers consume a vast amount of electricity by performing calculations on massive amounts of data using numerous servers in a short period.

NVIDIA plans to start mass production of its AI-dedicated GPU, “Blackwell,” later this year.

Although production delays have been reported, it is said that generative AI will become 30 times faster and 25 times more energy-efficient.

Once the shipment of Blackwell begins in earnest, interest in data centers is likely to further increase.

2. Expectations for Preferred Networks (PFN), Developing Domestic Semiconductors (for Generative AI)

SBI Holdings, a major internet financial company, announced a capital and business alliance with Preferred Networks (PFN), a startup that provides AI services.

The two companies will jointly develop AI semiconductors by incorporating PFN’s AI semiconductor design know-how.

Founded in 2014, PFN is a startup that vertically integrates the development and provision of hardware and software necessary for the practical application of AI technology. The company handles everything from the design of AI semiconductors and development of peripheral software to the development of supercomputers using its own AI semiconductors, construction of generative AI foundation models, and development of applications that utilize them. Since 2023, it has been providing computational platforms using its own AI semiconductors to external users.

Recently, the global demand for AI semiconductors has been rapidly increasing due to the advancement of generative AI technology, leading to a supply shortage. Furthermore, it is expected that power consumption from AI development and utilization will continue to increase, necessitating the development of high-performance and low-power consumption AI semiconductors.

Through this collaboration with PFN, the SBI Group expresses its enthusiasm in strongly supporting the domestic dissemination of next-generation AI semiconductors and promoting PFN’s business expansion, thereby contributing to the development of the semiconductor industry in Japan.

Additionally, by manufacturing PFN’s next-generation AI semiconductors, the SBI Group expects to increase its recognition in the manufacturing industry and create a semiconductor ecosystem in Miyagi Prefecture, where its planned business site is located, leading to high economic effects within the region. This, the company believes, will enable a significant increase in the added value of the SBI Group and establish a role model for industrial creation in local areas starting with the semiconductor industry.

We will continue to follow the developments of how the collaboration between the SBI Group and PFN will contribute to the revitalization of Japanese industries and the semiconductor industry.

The rapid growth of artificial intelligence (AI) has significantly increased the demand for data centers. As we’ve previously reported on data center construction projects, here are two new developments:

1. NTT Special Purpose Company to Build Data Center in Shiraoi City

NTT TEPC Data Center Special Purpose Company plans to construct a data center south of Shiraoi City Hall in Chiba Prefecture. Designed by NTT Facilities and to be constructed by Toda Construction, the project is set to begin in early April 2025 and be completed in late April 2027.

The building will be a seven-story steel structure with a total floor area of 28,623 square meters and a height of 49.20 meters. The construction site, located in Shiraoi City’s Fukuji Daisan district, covers an additional 32,901 square meters. Towasogo Systems is involved as a consultant.

Initially, Tokyo Electric Power Group’s TEPCO Real Estate planned to build a data center, the “Shiraoi DC Project,” on this site. However, NTT Data Group’s NTT Global Data Centers and Tokyo Electric Power Group’s Tokyo Electric Power Grid announced in December 2023 that they would establish a new company to jointly develop and operate data centers in the Chiba Prefecture’s Inzai-Shirai area. In February of this year, they established NTT TEPC Data Center Special Purpose Company.

On March 15 of the same year, ownership was transferred from TEPCO Real Estate to NTT TEPC Data Center Special Purpose Company.

Shiraoi City is adjacent to Inzai City, where numerous data centers have already been built. It remains to be seen whether this area will continue to expand as a data center hub.

2. ESR to Build Data Center in Redevelopment of Osaka University Minoh Campus

ESR has announced that it will begin dismantling existing facilities as early as 2024 for its “Osaka University Minoh Campus Redevelopment Project” in Minoh City, Osaka Prefecture. The project plans to develop a data center, schools, and other facilities, with construction work scheduled to be completed by 2026.

The company aims to begin construction of each facility in the same year and open them sequentially from 2027, with the school opening and partial operation of the data center scheduled for 2028.

Prior to the start of the project, Minoh City compiled a draft district plan for the project site. After a public comment period, a decision on the urban planning change is expected around November.

The facility introduction district will be developed as a data center, and the international education district will be home to an international school. Additionally, the project site will include stores, community facilities, and pedestrian walkways. Approximately 3,600 square meters will be allocated to parks, and a 12-meter-wide, 840-meter-long sectioned road will be constructed.

Previously, we reported on the construction of a data center on a former factory site. ESR’s plan, which involves redeveloping the former Osaka University Minoh Campus, suggests that the extensive land area and readily available power supply may have been factors in choosing to build a data center.

Moreover, this project involves urban planning that includes a data center, making it interesting to see how the details of facilities such as schools and stores will unfold.

In a previous article, we discussed the Japanese government’s consideration of providing tax breaks and subsidies for data center construction projects that demonstrate a high degree of decarbonization.

This time, we will examine the initiatives of Ishikari City in Hokkaido, Japan, which has already taken steps to establish itself as a data center hub focused on decarbonization.

Ishikari City’s Data Center Business Initiatives for Decarbonization

Ishikari City has been selected by the Japanese Ministry of the Environment as a “leading decarbonization region” as part of its goal to achieve carbon neutrality by 2050.

The city has also formulated a zero-carbon policy titled “Rediscovering the Region with Locally Produced Renewable Energy and Decarbonization” and has been working to create a decarbonized industrial cluster by supplying renewable energy (hereinafter referred to as “renewable energy”) to a group of data centers and surrounding facilities in the Ishikari Bay New Port area.

In November 2022, Flower Communications Co., Ltd., Hokkaido Electric Power Co., Inc., and Tokyu Real Estate Co., Ltd. signed a basic agreement to commercialize a data center operated entirely on renewable energy in Ishikari City.

Ishikari Renewable Energy Data Center No. 1 (ISRD), a limited liability company established by Flower Communications, is set to develop and operate the facility, with an opening scheduled for 2026.

Furthermore, in May 2023, Broadband Tower Co., Ltd. and ISRD entered into an agreement to commercialize the renewable energy data center scheduled to open in 2026.

As a data center specialist, Broadband Tower will participate in the business and contribute to the project by providing data center services within a section of the renewable energy data center.

The “Hokkaido Newtopia Data Center Research Association,” to which Broadband Tower, Flower Communications, Hokkaido Electric Power, and Tokyu Real Estate all belong, has been actively discussing the importance of Hokkaido’s role in Japan’s submarine cable topology due to its geographical location and the active planning of submarine cable laying projects in the Arctic Ocean, as well as the significance of establishing Hokkaido as a data center hub.

Broadband Tower and ISRD view this project as one of the fruits of these discussions and are eager to address various challenges related to data centers, such as greening and decentralization, in collaboration with local governments and businesses, in line with national and local government policies.

ISRD and this project have been selected as indirect subsidy recipients by the foundation established under the Supplementary Budget for FY2021 for the “Strengthening of Digital Infrastructure by Decentralizing Data Centers and Submarine Cables,” and the Japanese government is expected to provide support for the establishment of data centers in Ishikari City.

Expectations for Industrial Cluster Development and Regional Economic Growth

With the support of national and local government policies, the renewable energy data center park in Ishikari City, where the project is planned, is expected to see the aggregation of renewable energy-powered data centers and related industries.

Additionally, if the government’s subsidies for decarbonization become more substantial, how will Ishikari City develop? Expectations are high for the rapid growth of the region as a data center and related industry hub and for further development of the data center business.

With the rapid spread of artificial intelligence (AI), the importance of data centers is increasing. Currently, there is a potential shortage of data centers to support generative AI and the AI of the next few years, and there are challenges such as how to secure the large amounts of electricity consumed by data centers. While companies are making efforts to meet demand by using renewable energy and reducing carbon dioxide emissions, domestic companies tend to be less aware of this issue.

GAFAM companies have been building their own renewable energy power plants.

Companies like Amazon, known as GAFAM, have already entered into long-term contracts with power generators to directly procure renewable energy. They secure renewable energy generation facilities near electricity-consuming facilities such as data centers and use renewable energy in a “local production for local consumption” manner.

Google has announced that it has procured more than 50 renewable energy sources with a total capacity of 5.5 GW. Microsoft has announced contracts for 5.8 GW of renewable energy sources in 10 countries worldwide.

Government considers subsidy system

Meanwhile, the government has announced that it will promote industrial clustering in regions with abundant decarbonized electricity such as renewable energy and nuclear power. A system is being considered to review investment plans by companies and local governments when constructing factories and data centers, and to make projects with a high degree of decarbonization eligible for corporate tax breaks and subsidies.

The Green Transformation (GX) Promotion Act, which sets out the government’s decarbonization strategy, will be amended. Companies will be required to formulate plans specifying the proportion of decarbonized electricity used for facility development.

By making applications with municipalities that meet a certain level of decarbonized electricity for use within the region a condition, the government aims to shift to a corporate location policy focused on reducing environmental impact.

After certification, companies will be eligible for measures such as corporate tax reductions and subsidies for capital investment.

Expectations for a change in corporate awareness towards decarbonization

There is a bias in the regions where decarbonized electricity can be supplied domestically. Regions with a high proportion of decarbonized power sources, exceeding 40%, are limited to Hokkaido, Kansai, and Kyushu in Japan, where power generation facilities such as solar and wind power are widely located. Suitable locations for offshore wind power, which is subject to wind direction, are limited to the offshore areas of Hokkaido, Aomori Prefecture, Akita Prefecture, and Nagasaki Prefecture.

If electricity is transported far from the power plant, transmission losses occur. Transmission network equipment also incurs costs, making the use of electricity from remote locations expensive. Industrial clustering promotes local production for local consumption of electricity and leads to efficient use of energy.

In recent years, there has been active construction of semiconductor-related factories and new data centers in Japan. While electricity consumption is expected to increase, the government aims to achieve net zero emissions of greenhouse gases such as CO2 by 2050.

It is expected that subsidies will encourage companies to become more aware of decarbonization, but it remains to be seen how this will actually play out. We would like to introduce the future situation as well.

Japan is a country susceptible to natural disasters such as earthquakes, typhoons, and river floods. Historically, it has been crucial to manage data in locations that are resistant to such natural disasters and can minimize damage, ensuring stable operation of data centers.

Disaster-resistant locations are areas without nearby active faults, and regions not at risk of flooding from tsunamis, storm surges, or heavy rainfalls. However, recently, there has been a tendency to prioritize securing power and land in data center construction plans, while also considering disaster risks.

“ESR Cosmo Square” in Osaka Coastal Area

Suminoe Ward in Osaka City is located within 10 kilometers of Osaka’s city center and is a diverse area with commercial facilities in the coastal region, high-rise apartments in urban zones, and numerous factories in industrial areas. The ESR Group’s first data center project, “ESR Cosmo Square,” plans to construct a campus-type data center consisting of three buildings with a total IT power capacity of up to 98 MW in this area, which had previously seen no data center developments.

The buildings will be 5 stories high, measuring 40.34 meters (with a maximum height of 43.00 meters), and will incorporate disaster prevention measures such as raised floors and waterproof walls by surrounding the premises with walls.

With numerous cloud network connection points, telecommunications operators, and major IT companies concentrated in the surrounding area, and an increasing number of hyperscaler bases, a high demand for data centers is anticipated. The total asset value of “ESR Cosmo Square” is expected to reach $2.15 billion (approximately ¥314 billion), depending on the facility’s operational status.

Background: The Spread of Generative AI

The backdrop to this development includes the spread of generative AI, such as ChatGPT. According to a survey released by Mitsubishi Research Institute in May 2024, the amount of computation handled by data centers could swell to several hundred thousand times that of 2020 by 2040. Although data center operators are making efforts to improve energy efficiency, the demand surge shows no signs of slowing down.

Without prioritizing the acquisition of power and land, Japan may fall behind in global IT trends such as the evolution of generative AI.

Expecting Thorough Disaster Measures in Data Center Construction

Osaka, introduced in this case, is the second largest commercial hub after Tokyo, with a well-established population and infrastructure, making it the fifth-largest data center market in the Asia-Pacific region excluding China.

While the importance of data centers is increasing in the context of management reforms by large Japanese corporations, from a disaster prevention perspective, it is hoped that construction will proceed under meticulously prepared plans that consider all possible scenarios.