We are entering a new era of electricity growth, where the rising demand for data centers is a clear indicator of change, challenging utility providers to keep up. The disparity between the swift construction of data centers and the slower development of electricity infrastructure calls for innovative solutions. While adaptation has always been crucial, this time consumers are driving some of the most creative solutions, at a scale and speed likely to have lasting impacts on the industry.
Data Centers in the U.S.
The ongoing data center boom in the U.S. due to the rapid growth of AI technology has led to a surge in data generation and consumption. In fact, according to Prescient & Strategic Intelligence (P&I), the data center market is expected to advance at a compound annual growth rate of 10.1% during 2024–2030, to reach USD 622.4 billion by 2030.
This rapid growth has created challenges for data centers, as they must be equipped with sufficient storage and computing capabilities to handle the massive amounts of data required for training and running advanced AI models. Additionally, energy infrastructure must also be able to support the high power demands of these data centers, presenting a sustainability challenge, as data centers are known for their energy-intensive operations. As the demand for AI advancements continues to rise, addressing these challenges in data center infrastructure is crucial.
Rising Electricity Demand Tests Supply
The rapid growth of data centers in the U.S. has created numerous challenges, as they must be equipped with sufficient storage and computing capabilities to handle the massive amounts of data required for training and running advanced AI models. Energy infrastructure must be able to support the high power demands of these data centers, presenting a sustainability challenge, as data centers are known for their energy-intensive operations.
The North American Reliability Corporation (NERC) warns that the North American bulk power system is poised for significant expansion, presenting both reliability challenges and opportunities to a grid already undergoing unprecedented changes. 15 MW facilities developed a decade ago have transformed into gigawatt campuses, necessitating multiple substations and presenting unique challenges for distribution utilities. Such rapid expansion has left utilities struggling to keep up with the swift growth. As the demand for AI advancements continues to rise, addressing these challenges in data center infrastructure is crucial.
Imagine the transforming grid as a traffic jam caused by highway construction, while data centers resemble a fleet of trucks with urgent deliveries merging onto the on-ramp. This convergence creates gridlock, overwhelming utilities and regulators as they strive to modernize and decarbonize the grid, while simultaneously managing queues of generators and new loads vying for interconnection— all hindered by the same constraints. As the demand for AI advancements continues to rise, addressing these long-term challenges is crucial.
Sustainable Data Center Development
As demand for data centers continues to soar, sustainable development becomes paramount in ensuring that growth does not compromise environmental and societal standards. The challenge lies in meeting the needs of new data centers— facilitated by advancements in AI and data processing— while safeguarding the interests of existing energy consumers. Developing innovative strategies such as harnessing renewable energy sources, and utilizing brownfield sites for data centers presents a potential solution for some of these challenges.
Brownfield Development of Data Centers
Brownfield development of data centers involves utilizing existing facilities and energy infrastructure and rights of way, as opposed to greenfield development, which entails new construction on undeveloped land without existing transmission lines.
Another major challenge in data center development is finding suitable sites. Repurposing retired coal sites and brownfields, such as contaminated areas, offers an innovative solution to meet the growing demand for digital infrastructure. Once central to energy production or manufacturing, these locations are now ready to lead in the digital transformation era. Utilizing these areas for data centers not only makes use of previously developed land but also aligns with sustainability goals by reducing land disturbances. With the urgent need for expansive, accessible data center sites, these former industrial zones present a promising opportunity to transform into high-tech facilities.
Meeting New Energy Needs While Protecting Existing Members
For example, Duke Energy, a utility company based in North Carolina, recently announced new cost-sharing strategies for data centers to ensure these emerging users contribute fairly to grid improvements. To counteract potential distribution losses due to demand mismatches, Duke's new data center tariff will include "take-or-pay" terms for supply and advance payments for infrastructure development. These terms require facilities to pay for a specified minimum amount of power, regardless of actual usage. This contractual approach aims to balance the necessary infrastructure expansion for these new demands with preventing increased power bills for existing customers.
Utilizing Renewable Energy to Power Data Centers
Combining renewable energy projects with data center sites is becoming increasingly appealing. Known for their massive energy consumption, data centers can significantly benefit by being located near renewable energy installations. This proximity allows them to draw power directly from renewable sources, reducing reliance on the electric grid and mitigating their environmental impact.
For data center developers, accessing renewable energy directly can lead to substantial cost savings. By securing favorable long-term power purchase agreements (PPAs) with renewable energy providers, they can ensure stable and potentially lower energy costs over time. Additionally, this close proximity enhances energy reliability; in the event of grid failures, data centers can continue operations by using power directly from renewable installations. This approach also aligns with corporate sustainability goals and enhances the brand reputation of both data centers and renewable energy developers.
Could Data Centers Drive U.S. Electric Grid Modernization?
The rapid expansion of data centers may be perfectly timed to drive crucial investments in the grid, enabling more efficient use of existing infrastructure and ushering in a new era of energy efficiency. These well-funded entities might inject significant capital that could overcome the current deadlock hindering the development of expansive infrastructure, potentially transforming the industry for broader benefits.
Currently, the utility industry faces an excellent opportunity to strategically address the growing demand from data centers, setting a vital precedent for managing future load increases in a way that bolsters the grid. This moment presents a unique chance to invest in a wide range of solutions, starting with consumer efficiency and demand management, and moving upstream to ensure ample, reliable, and secure power amid rising electricity needs.
It's crucial to recognize that even if demand growth for data centers levels off or declines, this approach will prepare utilities for the next wave of electricity demand driven by robust industrial policies and widespread electrification. However, establishing clear priorities remains essential. This requires collaboration across the entire grid—from consumers to distribution systems and beyond—to craft solutions that avoid unintended consequences and maximize long-term benefits.
The Role of Government Agencies in Driving Data Center & Infrastructure Modernization
Government agencies play a critical role in steering data center and infrastructure modernization efforts. By implementing supportive policies, offering incentives, and fostering public-private partnerships, these agencies can help pave the way for innovative solutions that align with sustainability and digital transformation goals. Through regulatory frameworks that encourage the adoption of renewable energy sources and the use of brownfield sites, governments can facilitate the development of technologically advanced data centers that have minimal environmental impact.
Collaborative initiatives among stakeholders at federal, state, and local levels can create a cohesive approach to modernizing the energy grid, accommodating emerging technologies, and supporting data center proliferation while maintaining energy stability and security. Recent initiatives, such as the White House' AI Infrastructure Task Force, are working to support energy infrastructure modernization in this era.
Additionally, government agencies that own underutilized properties (including retired coal sites and brownfields) can lease their properties for data centers, which generates revenue and contributes to local economic growth, among other benefits. LandGate helps government agencies analyze the suitability of their properties for data center development and provides a marketplace where government agencies can advertise available properties for lease, all at no cost. Book a call with the government team at LandGate today to discuss this opportunity for your agency:
