Data centers are driving US power demand to hard-to-reach heights

Over the past year, the biggest story in the U.S. power sector has been the massive and looming increase in demand for electricity, most of it driven by data centers that companies like Amazon, Google, Meta, and Microsoft are planning to build to serve their gigantic AI ambitions.

This scramble for electricity has complicated efforts to decarbonize the U.S. power grid, which accounts for about one-quarter of the country’s carbon dioxide emissions. Facing the sudden prospect of huge new demand from data centers, utilities around the country are planning to build new fossil-gas power plants and keep coal plants online for longer, actions that experts fear will undermine various emissions targets.

A new report from consultancy Grid Strategies suggests that hunger for electricity will only accelerate, putting even more strain on these decarbonization goals — as well as on U.S. utilities and the ratepayers who end up paying for the power plants and grid infrastructure needed to support data-center growth.

Late last year, Grid Strategies was one of the first to note that U.S. electricity demand was set to boom beyond expectations over the next five years.

Fast-forward 12 months and things have only gotten crazier, according to its latest analysis. Federal data shows that five-year electricity demand forecasts have more than tripled in recent years. In 2022, the projection for five years out was 23 gigawatts of new load. By late 2023, that grew to 39 GW. Now, utilities are forecasting 67 GW of new load over the next five years.

But that federal data doesn’t show the whole picture. Taking into account recent updates from Georgia, Texas, Virginia, and other data-center hot spots, the country’s five-year load-growth forecast has increased almost fivefold in the past two years, to nearly 128 GW.

The U.S. hasn’t seen that kind of load growth since the 1980s, back when the U.S. economy and the power sector were much smaller, and climate change wasn’t yet a recognized threat requiring the rapid-fire replacement of fossil-fueled power plants with solar, wind, and other sources of carbon-free power.

All these factors make the challenge of expanding the U.S. grid and power supply to serve future needs much greater today, John Wilson, vice president at Grid Strategies, said in a Thursday press conference.

And while sectors such as manufacturing, electric vehicles, and electrification of building heating are also adding demand in the longer term, ​“data centers have stepped to the forefront,” he said.

This rapid demand growth is not spread evenly across the country. ​“Most of the load growth is occurring in the Dallas–Fort Worth region, in the Northern Virginia region, and in the Atlanta region,” Wilson said — regions where data-center developers are seeking gigawatts of power for projects they hope to build as quickly as possible.

Grid Strategies’ new report caps what has been a hectic and seemingly nonstop year of data-center planning and development, driven largely by big tech firms’ desire to outmuscle one another on generative AI.

In Northern Virginia’s ​“Data Center Alley,” the world’s largest concentration of data centers could nearly quadruple its power demand from about 4 GW today to 15 GW by 2030, according to Aurora Energy Research. That could equate to half of Virginia’s total electricity load, the nonprofit research organization Electric Power Research Institute says.

In Texas, forecasts indicate that data centers could be responsible for roughly half of new power demand, which is expected to drive summer grid peaks from about 86 GW today to about 150 GW in 2030. In November, Oncor, the utility serving the Dallas–Fort Worth area, reported 103 GW of potential load — or demand — seeking to connect to its system, with artificial intelligence and data centers making up about 82 GW of that, up from 59 GW of data centers as of August.

And Georgia Power, the state’s biggest utility, last month reported that its load forecast over the coming decade has tripled from 12 GW as of last year to 36.5 GW today, with large loads including data centers making up 34.6 GW of that expected demand. 

This massive hunger for computing power raises several important questions, Wilson said. The first is how utilities and regulators can guard against the risk of developing power plants and grid infrastructure to support data centers that might not actually get built.

Much of the new data-center buildout on the drawing board is being driven by ​“hyperscalers” — like Amazon, Google, Meta, and Microsoft — to expand computing capacity for AI services that have yet to prove that they can be profitable. ​“Let’s say those hyperscalers decide that this business didn’t work out after all and they disappear,” Wilson said. ​“You don’t want that cost to be left on the remaining customers.”

“That’s why this issue has become such a hot topic in a lot of jurisdictions,” he added. One noteworthy example is American Electric Power (AEP), a utility holding company that’s spent the past year negotiating with regulators and data-center companies to approve new rules for data centers seeking to connect in the areas served by its utilities in Ohio, Indiana, and Michigan.

A recently approved settlement agreement for AEP-owned Indiana Michigan Power provides one template for ​“new large loads that are coming onto their system to make certain financial guarantees that they will contribute to the cost of the equipment that is being installed to serve their load,” Wilson said. While data centers are an insignificant portion of today’s load, ​“they are projecting that it would become over 50 percent of their load in the next 10 years or so.” 

A second concern is how data centers could affect grid reliability, Wilson said.

Big data centers can drop off the grid and onto backup power systems at moments when grid power voltage and frequency fluctuate, causing sudden mismatches between electricity supply and demand on grids that must remain in constant balance to run safely, he noted. And some data-center operations like cryptocurrency miners ramp computing use up and down in response to changing electricity market prices at speeds that can disrupt grid operations.

Another major concern is how this spike in electricity demand could hamper efforts to reduce carbon emissions from fossil-fueled power plants. Most of the biggest tech companies driving the data-center boom have set aggressive clean energy targets and have played central roles in contracting for renewable energy resources being built across the country.

At the same time, utilities are pointing to the massive new loads coming from data-center plans to justify building gigawatts of fossil-gas-fired power plants to serve them.

In Virginia, utility Dominion Energy’s new Integrated Resource Plan calls for 21 GW of clean energy, but also 5.9 GW of gas generation, by 2039 — a buildout that critics warn will put state decarbonization mandates out of reach.

And in Georgia, a state without clean energy goals, utility Georgia Power is arguing with regulators, consumer groups, and data-center industry representatives over how much new fossil-gas-fired power generation capacity it needs to build to meet its rapidly growing load forecasts.

Tech giants have been working with utilities like Duke Energy in North Carolina and NV Energy in Nevada to create new structures to contract for carbon-free resources to match their growing demands on the grid. They’re also pledging to invest billions of dollars in restarting nuclear power plants or building next-generation small modular reactors.

Some companies are seeking to ​“colocate” data centers next to existing nuclear power plants to secure their carbon-free electricity. A recent federal regulator decision putting a hold on one such plan between Amazon and nuclear plant operator Talen Power has dampened hopes of this being a quick solution, however.

Far better would be to expand U.S. transmission grid capacity, Rob Gramlich, president of Grid Strategies, said during Thursday’s press conference. A larger and more robust grid has been shown in study after study to be a more cost-effective solution to load growth than building new fossil-gas-fired power plants or continuing to operate aging coal plants near data-center hot spots.

But the past decade has seen a slowdown in large-scale transmission projects of the kind that can effectively deliver low-cost power — including newly built solar and wind power — to regions hungry for it. This has led to grid congestion and interconnection bottlenecks that have made it much harder for new wind and solar projects to be brought online.

Those grid bottlenecks are particularly tight in the states served by mid-Atlantic grid operator PJM, which stretches from Virginia to Illinois, where the cost of providing power to meet peak demands has skyrocketed in the past year.

“I’m optimistic that we can build a lot of renewables fairly quickly, and the transmission required for any new resources,” Gramlich said, citing federal actions aimed at speeding the process of connecting new generation and building regional transmission projects to carry the power to where it’s needed.

But transmission projects still take much longer to build than data centers do. That puts utilities and regulators in data-center epicenters in a tight spot and makes it harder for them to find alternatives to fossil-fueled power plants to meet the increasing demand, he said.

That ​“challenges state, federal, and corporate decarbonization goals,” Gramlich said. ​“It doesn’t mean they’re impossible. It just means it got a little bit harder.”