AI & Electric Rates

Overblown Concern

Several recent articles have suggested that the growth of AI and data centers is driving up electric rates. This seems counterintuitive and, if accurate, represents regulatory misfeasance.There are fundamentally three approaches to powering data centers:

• Constructing new, grid-isolated, dedicated power systems

• Dedicating existing grid-connected generation

• Constructing new, grid-connected generation

Pacifico Energy has announced development of a 5 GW data center campus in Pecos, Texas, located close to the Permian Basin gas field. The campus, known as the GW Ranch, will be powered by natural gas combined cycle powerplants. It will also include 1.8 GW of energy storage. The campus will not be connected to the ERCOT grid and thus will have no direct effect on existing Texas electric rates.

Energy Abundance Development Corporation has also announced development of Data City, a 5 GW data center in Laredo, Texas. This data center is intended to be powered by renewable energy and to incorporate Green Hydrogen production and storage. Data City will also not be connected to the ERCOT grid and thus will have no direct effect on existing Texas electric rates.

Microsoft has announced an agreement with Constellation Energy to restart 875 MW Unit 1 at the Three Mile Island nuclear generating station in Pennsylvania to provide power to a data center. This generating unit has been out of service for several years and is not currently providing power to the grid in Pennsylvania.

Holtec International is restarting Holtec Palisades 800 MW nuclear generating station in Covert, Michigan. The Palisades restart is not currently associated with a specific data center development, although that is an obvious potential end use for the capacity. Holtec has also announced HI-CLOUD, a program intended to develop decommissioned nuclear plant sites as data center campuses.

Numerous coal and natural gas generating stations are currently scheduled for premature decommissioning because of the effects of increased renewable generation capacity on their economics of operation or under pressure from environmental intervenors. These plants could remain in service, dedicated to data center applications which would increase their operating load factors and improve operating economics. They could remain connected to the grid or potentially be reconfigured as stand-alone power systems with diesel generator backup.

This approach could potentially also be applied to the underused capacity of existing coal and natural gas powerplants, including capacity designated as capacity reserve margin by utilities. These plants would remain available for grid service on peak, supplemented by onsite diesel generators when called into grid service. This approach could actually lead to reduced rates since the existing plants would be able to bid lower prices into the Dutch Auction process used to set generator compensation.

Texas is developing a law which would allow new dedicated grid connected generation to be constructed to serve data centers, but would require that capacity to be available to the grid in case of emergency. This would also require the data centers to install diesel standby generators to allow them to continue operating through the emergency declaration.

The concerns regarding data centers increasing utility rates seem to be overblown. State utility regulators should assign costs associated with data centers to those centers, with no direct impact on existing rates. Failure to do so would represent regulatory misfeasance. Expressed concerns about data centers increasing utility rates might well be “gaslighting” to divert attention from the rate increases resulting from the expansion of renewable generation.

Originally published here.