The energy industry’s most discussed topic is also the latest electric utility quagmire.
A whole bunch of data centers are on the way. Many utilities face gigawatts of interconnection requests from so-called hyperscalers, stoking fear that the power grid will inevitably fail to keep up. But that doesn’t appear to scare utilities— at least not yet.
Utilities see data centers and the recent break from decades of stagnant load growth as a generational economic opportunity. Their near-term challenge, though, centers on connecting large data centers to the grid without burdening existing customers with costly system upgrades. That often criticized monopoly business model comes with an obligation to serve.
Constellation Energy CEO Joe Dominguez recently told investors that co-locating data centers with nuclear power plants is “the fastest and most cost-effective way to develop critical digital infrastructure without burdening other customers with expensive upgrades.”
Constellation, which operates the largest nuclear fleet in the U.S., is working with data center customers on potential co-location deals.
Data centers project to be significant drivers of growth in electricity demand. According to a study recently released by EPRI, data centers could consume up to 9% of U.S. electricity generation by 2030 — more than double the amount currently used.
“The simple fact is that data centers are coming, and they’re essential to America’s national security and economic competitiveness,” said Dominguez.
The rapidly growing data center industry has sparked an active and even divisive discussion among policymakers and stakeholders about how to power them.
Notably, Exelon and American Electric Power (AEP) are protesting a proposal that would result in the co-location of an Amazon Web Services (AWS) data center at Talen Energy’s Susquehanna nuclear plant in northeast Pennsylvania. In a filing to the Federal Energy Regulatory Commission (FERC) last month, the parties said the proposed Interconnection Service Agreement (ISA) raises unresolved questions and could result in unfair cost burdens on ratepayers and negatively impact market operations and reliability. FERC is now seeking more information about the amended ISA. Last week the federal agency called for a technical conference in the fall to discuss co-locating large loads like data centers with generators.
Constellation (a former Exelon entity) believes co-location allows significant new loads to be served without requiring expensive system upgrades, especially when grid operators are struggling to integrate new resources faster.
“Friday’s actions at FERC may have slowed things, but ultimately will be constructive in our view,” said Dominguez on the investor call. “We think the benefits [of co-location] are compelling.”
Dominguez noted PJM Interconnection’s latest capacity auction, which saw energy prices skyrocket more than 800%. Insufficient future transmission planning, the retirement of fossil-fired generation, long interconnection queues and the implementation of FERC market reforms are all contributing to the hikes. Meanwhile, PJM utilities have now identified at least 50 GW of expected data center load growth, Dominguez reported.
Plans to bring a data center developed by Elon Musk’s artificial intelligence company, xAI, to Memphis are pitting the local utility against its regulator, the city council.
xAI intends to establish a 150 MW data center at an existing industrial park near the Mississippi River in Southwest Memphis. Doug McGowen, CEO of municipally-owned Memphis Light, Gas & Water shared the plans at a somewhat contentious city council meeting last month. McGowen described the prospect of the data center as a potential “win for the city,” given that the data center would occupy a vacant industrial park facility and support the buildout of new infrastructure.
xAI would pay $1 million for necessary upgrades to the MLGW distribution system. The data center’s water needs could support additional water treatment facilities to serve the broader community. Because the company will not be receiving any subsidies, McGowen said local communities will benefit from a property tax windfall.
The site currently only has access to 8 MW of power from a nearby substation. MLGW proposes upgrading capacity to 50 MW at a cost to ratepayers of $760,000. That project could be completed by Aug. 1. Additionally, xAI would construct a new, 150 MW substation near the campus for $24 million, believing that they can complete the project cheaper and more quickly than the utility. xAI would receive monthly rebates from MLGW until costs are recouped and the utility would take ownership of the substation.
McGowen told council members that the xAI data center would not strain the grid or impact reliability for local customers. The added 150 MW load is still well within MLGW’s peak load forecasts, and the utility can buy additional power from the Tennessee Valley Authority. The facility is also likely to participate in a demand response program, cutting power usage during times of grid strain.
Council members said they were “disheartened” by the plan, primarily due to their level of involvement in the arrangement. Several said they had received numerous concerns from the public about the plan, which had been reported by local media but not previously shared with the city council.
The project still requires TVA board approval due to xAI’s request for more than 100 MW of power, and an agreement is likely to include enrollment in a demand response program.
“We don’t know anything,” Council Member Rhonda Logan said. “This is already here and we don’t know anything.”
