As utility CEOs tell Wall Street about eye-popping numbers on the surge in electricity demand caused by the explosion in data centers, investors and consumers alike are wondering: What does this mean for them?
Columbus, Ohio-based American Electric Power expects its utility demand to grow by 15 gigawatts by 2030 — an increase of more than 40 percent, interim CEO Ben Fowke told analysts and investors last week. In Northern Virginia, Dominion Energy said data center growth is accelerating by “orders of magnitude.” CEOs of other major utilities such as Duke Energy and Exelon reported similarly sharp increases in data center power demand.
The numbers are music to the ears of energy providers and politicians of both parties – they crave jobs and economic growth that can help them win re-election. But the lack of clarity around the long-term numbers is raising skepticism about how much growth will actually be achieved, and consumer groups are concerned about the impact on consumers, many of whom have seen their electricity bills rise at an ever-increasing pace over the past three years.
Paul Patterson, a utility analyst at Glenrock Associates, said it “remains to be seen to what extent the staggering demand numbers being reported are exaggerations and correspond to reality.”
“In two years we will see whether everyone is talking about it or not,” he said.
The excitement, Patterson said, is reminiscent of the excitement over internet-related power demand a quarter of a century ago, when Forbes The magazine published an article that greatly exaggerated the impact of the Internet on the power grid. When Lawrence Berkeley National Laboratory analyzed the numbers, researchers concluded that the author exaggerated the impact of Internet-related power consumption by a factor of eight.
Utility CEOs are excited about the potential of new, large, power-hungry data centers for good reason: They require more power plants and lines, as well as huge investments in the new infrastructure that will generate profits for the companies.
But the prospect of large new demand also brings risks for consumers, who would have to pay for these investments if the new demand fails to materialise.
“Utilities could oversize their system capacity for a load that never materializes or that serves the new load for a period shorter than the useful life of the new power plant,” Moody’s Investors Service explained in a recent research report. If that happens, “some of the infrastructure costs incurred to meet this expected demand could be passed on to other customers.”
This risk is further compounded by the fact that public utility customers in many parts of the country are already facing drastic bill increases.
“We currently have rate cases where typical residential customer bills will increase by about 30 percent between 2022 and 2026,” said Tom Content, executive director of the Citizens Utility Board of Wisconsin, a consumer advocacy group. And that doesn’t even include the cost of new infrastructure related to data centers.
President Joe Biden traveled to Wisconsin in May to join Gov. Tony Evers (D) and Microsoft officials to announce a $3.3 billion data center to be built by 2026 to expand cloud computing and AI capabilities. Microsoft’s data center is to be built on the site of what was once planned to be a massive Foxconn flat-panel TV factory that never came to fruition.
Microsoft has agreed to pay its fair share for the equipment needed to power the plant, including a new 250-megawatt solar project in Wisconsin. However, Microsoft is guaranteed a discount on market electricity rates under a state law designed to help Foxconn.
Utility executives believe the new large energy sources can be beneficial to consumers. Increased revenue from data centers can expand the customer base that shares a utility’s fixed costs, thereby reducing the cost per unit of energy.
Is an additional burden good for consumers?
But putting theory into practice is another matter.
“We’ve been hearing for years that increasing load and adding new customers ultimately lowers rates for other customers,” says Kerwin Olson, executive director of the Citizens Action Coalition, an environmental and consumer advocacy group in Indiana. “But we’ve never seen that actually happen.”
In Indiana, utility NIPSCO said during a meeting with state regulators in June that peak demand could nearly quadruple by 2035, with most of the growth coming from data centers. While not all of those may materialize, the utility said it has six “active” data center projects that would represent 8,600 MW of load by 2035.
American Electric Power’s Indiana Michigan Power utility is proposing rate changes in Indiana that would protect the company and its customers from associated risks. The changes are similar to those AEP proposed earlier this year in its home state of Ohio.
Fort Wayne, Indiana-based utility Indiana Michigan Power said in a regulatory filing last month that the proposed changes would give the company the confidence it needs to invest in grid improvements and “appropriate financial protection in the event of future circumstances that impact the operation of a customer’s facilities and reduce electricity demand.”
The utility said it was in talks with so-called hyperscalers – trillion-dollar technology companies such as Google, Amazon and Microsoft – and other potential data center customers that would nearly triple peak demand from 2,800 MW to 7,000 MW by the end of the decade.
Discussions about the data center boom – fueled in part by state and local tax incentives to attract the industry to Indiana – are raising numerous questions about the state’s energy future, including efforts to further wean itself off coal dependence.
In the interest of consumers, advocacy groups like the Citizens Action Coalition want utilities to proceed cautiously and find smaller, cleaner solutions to new demand, including distributed energy, energy efficiency and demand response, before rushing to build large new power plants.
“We’re concerned that we may be giving the utilities a blank check to build a lot of expensive things that we really don’t need,” Olson said.
