As Data Centers Multiply, Diesel Generators Run Short of Supply

The AI boom is driving explosive growth in data center construction. As backup power to guarantee safe and reliable operation of data centers, diesel generators have been in short supply in recent years.

“Many data centers span an area equivalent to several football fields and require reliable power supply at the hundreds-of-megawatt level,” said Zhou Yahong, General Manager of Rolls-Royce Power Systems Greater China. Speaking to Caijing, he noted that backup power for data centers is a rapidly growing business across global markets including China. Rolls-Royce’s global data center business achieved 35% growth in 2025.

Zhou explained that backup power constitutes critical infrastructure for data centers to ensure business continuity. In the event of grid outages or disturbances, the backup power system can rapidly take over the load, sustaining the operation of cloud services, AI platforms and other key systems and delivering stable power until the main supply is restored. The uptime requirement approaches 100%.

The ripple effect of the AI industrial chain extends from core hardware to supporting equipment. As more data centers are built, diesel generators are running short of supply. Currently, most diesel generator manufacturers have order backlogs stretching to 2027–2028. Surging demand, supply shortages and price hikes will become the norm in the diesel generator market in the coming years.

Multiple research institutions forecast that China’s demand for diesel generator sets for data centers will exceed 6,000 units in 2026 alone, corresponding to a market size of roughly RMB 10 billion. The global market for data center generators is projected to reach USD 22.6 billion, with demand for around 42,000 units.

Demand Surge: AI Computing Power Spurs a RMB 10-Billion Diesel Generator Market

Traditionally, buyers of diesel generators mainly came from oil & gas, mining machinery, shipbuilding and other sectors. For instance, diesel generators were deployed to power mining trucks and large vessels. In recent years, a substantial portion of new orders has originated from data centers.

Global construction of AI data centers has entered an explosive phase. Tech giants including OpenAI, Microsoft, Google, Meta and Amazon continue to ramp up investment in computing hubs. Data center servers often cost billions of RMB, and losses caused by a single power outage can be incalculable, making the reliability of power systems paramount. As backup power or even standalone power generation facilities, diesel generators can deliver stable power over extended periods and thus play an irreplaceable role. Accordingly, reliability ranks first for data-center diesel generators, with cost secondary.

“Demand for data-center diesel generators has seen explosive growth starting two years ago. At present, 25% of data centers worldwide rely on Rolls-Royce Power Systems’ mtu Series 4000 generators for emergency power backup,” Zhou Yahong told Caijing. The company’s global orders already cover certain data center projects scheduled for 2028, with some framework agreements extending to 2030. Driven by rising market demand, Rolls-Royce has raised its target for annual original equipment revenue growth in its global power generation business from approximately 20% by 2028 to 25% by 2030.

How Strong Is Data Center Demand for Diesel Generators?

Huayuan Securities estimates that the global diesel generator market will be worth around USD 22.6 billion in 2026 — USD 19.6 billion overseas and USD 3 billion in China — corresponding to global demand of roughly 42,000 units, including 35,600 overseas units and 6,600 units in China. Soochow Securities’ estimates also point to robust industry growth: China’s diesel generator market reached RMB 12.5 billion in 2025, up 53% year-on-year, and is expected to hit RMB 18.2 billion by 2028, representing a compound annual growth rate (CAGR) of 22% from 2024 to 2028.

Supply Crunch: Orders Booked Years in Advance, Prices Keep Rising

Strong market demand is matched by limited supply, and capacity expansion is constrained by the complex supply chain unique to the generator industry.

An industry insider told Caijing that capacity expansion for diesel generators follows objective physical constraints. Expanding production of large generators in particular requires long lead times, as it relies on upstream and downstream supply chains covering large crankshafts, cylinder blocks and fuel systems — challenges engine manufacturers cannot resolve independently.

Leading players including Cummins, Caterpillar and Rolls-Royce have stated that production slots for high-power backup generators for data centers are fully booked through 2027–2028.

“Electromechanical engineering implementation usually takes 5–6 months. But for core diesel generators, lead times from major global diesel generator brands have remained at 8–12 months starting last year,” said Tan Jingwei, Executive General Manager of the Digital Technology Development Center of China Construction Third Engineering Bureau, at a recent industry forum, describing practical difficulties faced by data center builders.

Supply shortages have directly pushed prices upward.

That said, capacity expansion has begun. “Rolls-Royce previously mainly manufactured mtu Series 4000 generators in China. But in recent years, we have witnessed shifts in the Chinese market. Downstream applications including data centers and mobile power vehicles have expanded rapidly with sharp demand growth, prompting us to further broaden our product portfolio manufactured locally in China,” Zhou Yahong explained. In August 2025, Rolls-Royce Power Systems’ new mtu Series 2000 engine rolled off the production line in China for the first time.

Lang Yun, Vice President of Stationary Application Sales, Rolls-Royce Power Systems Greater China, stated that the company plans to double its global power generation capacity between 2022 and 2028, with major investments concentrated in Germany and the United States. This includes an expansion plan for its Mankato plant in Minnesota, USA. The facility is expected to achieve a 120% capacity increase in 2026 versus 2024. This expansion was completed earlier in 2026 and has entered operation.

Compared with overseas counterparts, Chinese buyers of data center diesel generators exhibit different requirements. Lang Yun observed that Chinese customers launch projects very quickly and demand shorter delivery cycles. Previously, projects he handled typically had long timelines: bidding document preparation through final delivery usually spanned 2–3 years. Today, there are far more projects, with several or even a dozen advancing simultaneously. This raises the bar for diesel generator enterprises in organizational coordination and internal & external communication efficiency.

Rise of Domestic Brands: Domestic Market Share Quickly Tops 30%

The market for high-end diesel generators required by data centers has long been dominated by multinational corporations. Soochow Securities calculated that foreign and joint-venture manufacturers held a combined 83% share of China’s diesel generator market in 2024, while domestic players accounted for only 17%. Multinational firms such as Cummins, Caterpillar and Rolls-Royce occupy top positions.

Nevertheless, the supply-demand gap has opened opportunities for domestic manufacturers. Statistics from the Data Center Committee of China Communications Industry Association show that the domestic substitution rate of data-center diesel generators has risen rapidly from under 20% in 2024 to over 30%. Still, output remains insufficient to satisfy current demand, and further capacity release is needed.

Weichai Power (000338.SZ / 2338.HK) serves as a typical example of domestic substitution. Its financial reports disclose that the firm sold 104,000 power-generation engines in 2025, up 15% year-on-year. Among these, roughly 1,400 engines were for data centers, representing a striking 259% year-on-year surge. In Q1 2026, sales of data-center engines exceeded 500 units, jumping more than 240% year-on-year.

According to Goldman Sachs estimates, the data center generator business currently contributes 10% of Weichai Power’s net profit. By 2030, profit from this business may grow nearly tenfold and account for one-third of the company’s total net profit. Goldman Sachs points out that Weichai Power’s largest source of profit currently comes from heavy-duty truck engines serving traditional cyclical sectors including construction machinery and agricultural equipment. Its core future growth will come from continued volume growth in data center generator business. Weichai is gradually transforming from a traditional engine and heavy-truck cyclical enterprise into an AI power infrastructure supplier.

Although domestically substituted products enjoy advantages in delivery cycle and pricing, a gap in market trust persists in the short run. Cloud service providers and IDC operators admitted that “brand inertia” and the zero-tolerance reliability requirements remain the biggest obstacles to procuring domestic generators.

Xu Zhiyu, Data Center Architect at UCloud, described real resistance in frontline sales: “As one subsystem within a data center, backup diesel generator systems are rarely evaluated by customers down to granular performance metrics. Buyers tend to focus more on brand, viewing century-old overseas brands as reliable and widely adopted. If a brand is excluded from the bidding whitelist, we service providers have to devote tremendous effort to convince customers.”

Industry consensus holds that booming market demand creates more commercial opportunities for both imported and domestic brands. Soochow Securities believes domestic manufacturers hold advantages in capacity expansion speed, pricing and responsiveness. They are poised to realize domestic substitution first in China’s data center market and potentially expand overseas to lift their global market share.

Future Trends: Higher Power Ratings and Dual “Diesel + Gas” Drive

As power density per cabinet in intelligent computing centers keeps rising, there is an urgent need for diesel generator units with higher individual power output. Meanwhile, campus space at hyperscale AI computing clusters is extremely valuable, imposing higher requirements on the power rating and capacity of single diesel generators.

“A 100 MW intelligent computing center requires hundreds of diesel generators. First, steel platforms occupy massive floor area and are built taller and taller. Second, operation and maintenance personnel face greater difficulty working on multi-story steel platforms. If the power rating of a single diesel generator can be lifted from the current 2,000 kW to 3,000 kW, 4,000 kW or higher, this problem can be partially alleviated,” explained Yang Wei, Deputy Dean of the Energy & Construction Institute at Beijing Telecom Planning & Design Institute, outlining design challenges for diesel generators in hyperscale intelligent computing centers.

Due to differences in power supply architectures for data centers across countries, Lang Yun noted that demand for high-power diesel generators is largely concentrated overseas. The Chinese market mainly adopts medium-power units in the 1,800 kW–2,000 kW range, though demand for high-power models is also growing.

Diesel generator makers are designing and developing larger generators and higher-output generator sets. For example, Rolls-Royce has announced a new generation of mtu Series 4000 engines. While maintaining nearly the same footprint, the new engines boost maximum power output by over 20% and deliver lower fuel consumption, scheduled for launch in 2028.

Unlike Chinese data center operators, who mostly deploy diesel generators as backup power, North America, plagued by frequent power shortages, has seen US AI giants prioritize “self-sufficiency in power”. Lang Yun explained that North American clients are not only buying more backup power; a growing number of data centers incorporate on-site independent power stations into development plans, which can supply reliable power for facilities before grid connection or other energy supplies are available.

The North American Electric Reliability Corporation (NERC) forecasts that US data center electrical load will reach 70 GW by 2030, with an average annual peak power deficit exceeding 20 GW from 2027 to 2030.

Against this backdrop, another industry trend is quietly gaining traction: gas generators are entering the primary and backup power scenarios for computing hubs. Industrial chains both internationally and domestically are actively following up, and a dual “diesel + gas” solution may emerge as a new option in the future.

Hundreds-of-megawatt medium-speed gas generator projects have already been deployed across multiple sites in North America. Their strengths include higher efficiency (thermal efficiency above 50%, with overall efficiency exceeding 60%), 10%–20% lower fuel consumption than conventional diesel generators, plus delivery cycles aligned with data center construction schedules. Lang Yun shared that Rolls-Royce has also rolled out gas generator sets and pure hydrogen gas generator sets to meet rising power requirements.

For the global data center sector, competition has shifted from “racing for grid power” to “racing for diesel generators”. As a new round of AI computing-power competition unfolds, “soaring demand, tight supply and rising prices” will remain the long-term trend of the diesel generator market over the next several years.