Data centers are booming. Their need for power is causing utilities to retreat on green energy.

  • Companies like Amazon, Google, and Microsoft are fueling a surge in data center development.
  • In Phoenix, data center power requests would require the system to almost double in size.
  • A Nebraskan utility has postponed the shutdown of a coal plant.

Data centers have gotten a lot of attention in Phoenix and the surrounding area because of how much noise they make, how much water they use, and how much land they take up.

Now, the massive amount of power consumed by this rapidly expanding industry threatens to overwhelm the city’s utilities and stymie efforts to remove fossil fuels from the grid, even as the climate crisis has become increasingly dire. For a record 54 days this year, the daily high temperature in Phoenix reached or exceeded 110 degrees Fahrenheit.

“We currently have about 7,000 megawatts of data center requests in our pipeline,” Karla Moran, an executive at Salt River Project, one of two major utilities serving the Phoenix area, told Insider. Moran noted that those requests exceeded the total capacity of the utility’s 11,000 megawatt system.

While not all of those power requests are expected to be granted, she said the level of interest was unprecedented. Moran stated that the data center industry’s soaring electrical demand has been so significant that it has been factored into the utility’s far-reaching plans.

SRP, the power company, approved a significant expansion of its generating capabilities in October, including the development of 2,000 megawatts of new methane gas facilities. These plants will effectively preserve the size of its fossil-fuel-fired infrastructure portfolio for the next decade and possibly beyond. (Methane is the primary component of natural gas.)

Moran stated that data centers, with their high, continuous power consumption, are “one of the main reasons we look at having a resource like that.”

Rising energy demand and a reluctance to reduce reliance on fossil fuels

Data centers are becoming increasingly important in modern life, providing the computing, storage, and transmission equipment that powers the internet, mobile applications, and a variety of other functions such as autonomous vehicles, streaming video, and record digitization.

Many in the United States are owned by large technology companies, including the three largest cloud service providers — Amazon, Microsoft, and Google — as well as major publicly traded corporations that specialize in developing and operating data centers, such as Equinix and Digital Realty.

Artificial intelligence applications are expected to be a significant new customer for data centers, necessitating the development of a new generation of facilities specifically designed for AI’s computational needs and higher power intensities. According to McKinsey, the amount of electricity required to power data centers in the United States will more than double by 2030.

The industry’s expanding energy requirements present a challenge for utilities already burdened by societal shifts such as the adoption of electric vehicles, increased use of air conditioning in hot weather, and electrification of home heating and cooking.

The pressure has prompted some, such as SRP, to exercise caution in removing oil, gas, and even coal from their power-generation portfolios.

“Necessity will say you’ve got to have capacity to meet the demand of what’s coming your way,” said Terry Boston, former CEO of PJM, the nation’s largest grid operator by customer count. “With data centers, you’re going to do all of the above to have capacity to meet those loads.”

The unwillingness to abandon fossil fuels contradicts the rapid decarbonization of the grid that scientists say is required to avert the climate crisis.

According to a study published in September by Columbia University’s Center on Global Energy Policy, even if society achieves widespread carbon reductions in the coming decades, the rate at which emissions decrease within that time period will be critical.

Data centers, according to James Glynn, a senior research scholar at the center, are a “additional and unforeseen load” on national grids, putting “additional pressure on decarbonization goals.”

“The grid needs to be zero carbon,” Glynn stated. Data centers “could be quite consequential.”

Caryn Potter, Arizona representative for the Southwest Energy Efficiency Project, a public-interest group that monitors regional utility plans, expressed concern about SRP’s decision to maintain the size of its fossil-fuel fleet.

“SRP needs to come back to the drawing board and revisit what their goals are to ensure that they’re actually reaching the decarbonization we’re going to need,” she went on to say.

Utilities struggle to meet data center demands while reducing carbon emissions.

The impact of the data center industry’s energy demand on utilities extends beyond Phoenix.

Omaha, Nebraska, for example, has seen a surge in data center development, fueled by Google’s $3.4 billion investment in data centers it operates or plans to build in the state.

As a result, the utility, Omaha Public Power District, or OPPD, said it is experiencing the largest increase in demand in its nearly 80-year history, with data centers being the primary driver.

According to a spokeswoman, it sought and received approval last year to postpone the closure of a coal plant on the city’s north side until 2026. That facility was supposed to be decommissioned by the end of 2023. The situation was blamed on delays in connecting two natural gas stations and solar projects to the grid, which were supposed to replace the coal facility.

It approved a plan in August to build up to 950 megawatts of new methane-powered generating facilities as part of a more than $2 billion expansion that will nearly double its capacity by 2033 to just over 5 gigatonnes – roughly the size of New York City’s average day’s electrical load. A gigawatt is equal to 1,000 megawatts, which is enough energy to power hundreds of thousands of homes.

OPPD has stated that it will only use the new gas plants on a limited basis to meet power demand that exceeds the capacity of its growing renewable portfolio. However, it has delayed bringing clean energy projects online, and its claims that fossil fuels will only service peak loads have sparked skepticism among environmentalists.

“It’s an awful lot of money to put into something that’s not going to be used very much,” said David Corbin, energy chair for the Sierra Club’s Nebraska chapter.

Corbin expressed disappointment that OPPD’s solar development was “dragging its feet,” but that “gas plants are moving forward with great speed.”

Dominion Energy, the country’s largest data center market, announced earlier this year a plan to double its own capacity in northern Virginia, bringing the state’s grid up to par with France’s. To accomplish this, the utility is considering delaying the decommissioning of two coal plants and constructing new methane-fired generating stations with a total capacity of 9 gigatonnes.

Dominion Energy stated that the 9 gigatonne plan was presented as a “least-cost” option that it did not view as a “true alternative path forward.” The utility has previously presented scenarios in which it would build nearly 3 gigatonnes or 1 gigatonne of new gas-fired capacity.

Nonetheless, Dominion has seen a record increase in data center demand. It revealed in a September filing that it had completed contracts to deliver an additional 5.8 gigatonnes of capacity to data centers by 2032, which would triple the industry’s current power load in northern Virginia.

Dominion spokesman Aaron Ruby wrote in an email that data centers’ large and unrelenting power drain “reinforces the need for always-reliable electricity sources that can provide power around the clock.”

Renewable energy ‘can’t consistently produce enough power’

The data center boom is occurring at the same time that many utilities have increased their development of renewable power in an effort to green the grid and meet either voluntary goals or deadlines imposed by some states to reduce carbon output.

SRP, for example, stated in its recently adopted system plan that it would triple its portfolio of solar power and other renewables. Dominion has stated that it intends to tenfold its renewable generating capacity by 2038, plans that include the country’s largest offshore wind project. OPPD, too, says it will expand its clean energy projects, with up to 1,500 megawatts of new capacity, enough to power up to 450,000 homes, according to a spokeswoman.

Data center developers and users say they are also advocates for reducing grid emissions. By signing long-term power purchase agreements, the industry has used its massive energy needs to fund the construction of new renewable projects.

Devon Smiley, a Google spokeswoman, mentioned the company’s goal of using carbon-free electricity around the clock for its operations by 2030 in reference to Google’s data center development in Nebraska.

“We are actively exploring clean energy projects in the state in close cooperation with OPPD but don’t have any details to share at this time,” he said.

Amazon, one of the country’s largest data center users, told Insider that it had signed power purchase agreements to purchase energy from approximately 6 gigatonnes of solar and wind facilities across the multistate electrical grid that includes northern Virginia.

These electrons will be used to offset the energy used by the company’s data centers and other operations.

“For sure, there is no other industry today that is enabling” utilities to adopt “cleaner energy generation” than data centers, according to Lee Kestler, CEO of data center developer EdgeCore.

Though the data center industry has helped finance green energy, its own use frequently eludes the infrastructure it is assisting in the construction of.

When there is no wind or sunlight, data centers, along with other users such as automated factories, 24-hour sorting and delivery e-commerce warehouses, smelting plants, and nighttime electric-vehicle charging, consume dense loads of electricity.

To try to adapt, utilities have begun to construct massive battery arrays and other large-scale energy storage methods, such as pumped hydropower, to collect reservoirs of excess renewable energy when it is flowing through the grid and distribute it to users when it is not. SRP, for example, announced plans to build 1,000 megawatts of pumped hydro storage by 2035, a method that is effective but difficult and expensive to implement.

Battery storage, which is more easily deployable, is being considered for its near-term plans. SRP announced plans to build a 250-megawatt battery facility to help cover the power load of a new $2 billion data center being built just outside Phoenix. OPPD and Dominion have both announced battery projects.

However, battery systems are still small in comparison to overall consumption and, for the time being, can only supplement the grid for a few hours at a time.

“Current battery technology only stores power for 4-6 hours,” Aaron Ruby, a Dominion spokesman, wrote in an email. He cited the time constraint as one of the reasons the utility “cannot rely solely on renewables.”

“Offshore wind only produces power 40-50% of the time, solar only 20-25%,” Ruby wrote in an email. “If those are the only electricity sources we have, we can’t keep the power on.”

Due to the limitations of renewables and the storage systems that could allow them to be used more extensively, fossil-fuel infrastructure is frequently required to meet at least a portion of the power load from data centers and other industrial-size customers.

“We’d like it to be clean,” said EdgeCore CEO Kestler of data center energy consumption. Nonetheless, “today you can’t produce enough power consistently with a renewable energy source.”

As the number of data centers increases, more utilities are struggling to keep up.

The disparity between the power consumed by data centers and the availability of renewable electricity to meet it is quickly becoming a grid-scale issue.

Data centers, which resemble featureless warehouses, began to proliferate a decade ago as a result of a boom in cloud computing and storage led by tech behemoths like Amazon, Microsoft, and Google. Artificial intelligence is expected to open up a new frontier of opportunity. Large investors such as Blackstone, KKR, and Brookfield have poured money into new development projects worth tens of billions of dollars.

Power demands from data centers in densely populated areas can equal or even exceed those of entire cities.

According to Insider, Amazon’s planned data center footprint in northern Virginia alone is likely to exceed 3 gigatonnes, more than the capacity of its home city of Seattle.

The question of how more utilities will meet the challenge of catering to the industry is still being debated.

In November, APS, Phoenix’s other major utility, is expected to release its long-term energy strategy, known as an integrated resource plan, or IRP. According to preliminary documents, data centers are “the major source of load growth during 2023-2038.”

Wendy Bridges, the economic development director for Goodyear, a city of about 100,000 people just west of Phoenix that is part of APS’s service territory, said she had personally witnessed the demand. Microsoft, which has two large data center campuses in Goodyear, has told her that it wants to expand both. Stream and Vantage, two other major center developers, have recently announced plans to expand their operations in the municipality.

Bridges stated that data centers were appealing due to the large sums of money spent on the developments, which generate property tax revenue for local governments, as well as the construction jobs they provide.

“Definitely we have a few that we’re talking to about their future plans,” Bridges went on to say. “When you talk about the amount of investments, that’s when things change because they’re huge investments. They’re billion-dollar projects.”

APS spokeswoman Jill Hanks told Insider that the utility had received “unprecedented requests for energy from prospective extra-large energy users, mostly data centers, who need consistently high levels of energy 24/7/365.”

The power requests “would be the equivalent of adding roughly 560,000 Arizona homes over the next eight years,” Hanks said.

Hanks stated that the details of APS’s plans for a “balanced strategy” to meet that load growth will be answered in its November IRP.

“APS has still been hinting and projecting that they’re going to need a significant amount of natural gas,” Potter, the Southwest Energy Efficiency Project’s representative, said.

NV Energy, Nevada’s utility, has also seen an increase in data center development.

Reno, because of its proximity to the Bay Area and the concentration of major technology companies in that region, is expected to grow dramatically as a data center market, as part of a nationwide migration of data centers.

“The state of Nevada is continuing to grow, and NV Energy has certainly seen an increase in interest from data centers looking to come to the Silver State,” said Meghin Delaney, an NV Energy spokeswoman.

EdgeCore CEO Kestler believes Reno will be able to compete with Phoenix in a decade. Reno is “where the puck will go in the next ten years,” according to Kestler.

EdgeCore announced plans to build a 216-megawatt data center in the city in August.

According to watchdogs, NV Energy has a shaky track record when it comes to dealing with growth.

The utility received state approval in March for a 440-megawatt expansion of its Silverhawk Generating Station, a methane-powered plant located 30 miles outside of Las Vegas. The project drew criticism because it was completed by amending the utility’s two-year-old integrated resource plan, a move that Hunter Holman, an attorney for Western Resource Advocates, which monitors the Nevada utility, said allowed it to avoid the typical regulatory scrutiny that such projects face during the IRP process.

“It’s not accurate to say that amendments avoid regulatory scrutiny,” NV Energy spokeswoman Delaney said.

In 2021, NV Energy announced that it would close the North Valmy Generating Station and replace it with solar and battery storage. However, NV Energy recently announced that it would build two methane plants in place of the coal station at North Valmy, as well as scale back the size of the solar and battery systems it is planning for northern Nevada.

“They’re signaling that they want more gas,” said Holman.

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