Concerns Raised by Regulators Over Data Center Locations at Power Plants

The surging demand for energy driven by the rapid growth of artificial intelligence (AI) technologies has prompted significant concerns surrounding the construction of energy-intensive data centers adjacent to power plants in the United States. A recent technical conference hosted by the Federal Energy Regulatory Commission (FERC) highlighted the urgency of addressing both costs and reliability issues associated with this burgeoning trend.

As the technology industry accelerates the deployment of data centers to support applications such as generative AI, the challenge of quickly accessing substantial amounts of electricity has emerged as a critical concern. The strategy of co-locating data centers near power plants offers a more expedient solution to obtaining the necessary energy, circumventing the often lengthy process of connecting to the broader electrical grid.

FERC Chairman Willie Phillips emphasized the importance of supporting the development of AI data centers, viewing them as essential to both national security and the U.S. economy. This sentiment is echoed in recent corporate strategies, such as Amazon’s acquisition of a data center powered directly by a Pennsylvania nuclear plant owned by Talen Energy. The trend has resulted in rising stock prices for major independent nuclear operators like Constellation and Vistra, who anticipate similar partnerships.

However, the increase in co-located data centers raises several concerns. One major issue is the potential for higher electricity bills for consumers, as these facilities utilize the existing grid infrastructure funded by the public. The reliance of data centers on the grid raises reliability questions, especially if they divert consistent power from the grid to meet their high energy demands.

FERC has sought to clarify how co-located data centers would interact with the grid, particularly in scenarios where a neighboring power plant experiences outages. Commissioner Mark Christie raised pertinent questions regarding the impact on consumers if co-located centers were to depend on the grid as a backup power source during such events.

The outcomes of the technical conference may result in the establishment of new guidelines for co-located data centers, focusing on issues such as who bears the costs of transmission and distribution upgrades and the governance of agreements involving these centers. Additionally, FERC is currently evaluating a regulatory dispute involving electric utilities concerning the co-location agreement between Amazon and Talen Energy. This case could set a significant precedent for future data center developments.

Concerns about the effects of increasing co-located data centers on the regional power supply and demand balance were voiced by industry experts. Joseph Bowring, a market watchdog for PJM Interconnection, cautioned that these developments could exacerbate existing supply-demand imbalances rather than alleviate them. He urged data center developers to focus on facilitating the addition of more power sources to the grid.

In response to the evolving energy landscape, Brian George, Google’s head of global energy market development and policy, underscored the company’s commitment to paying its share of costs associated with co-located developments, clarifying that their interest is driven by the necessity for reliable electricity access rather than cost avoidance.

Overall, the growing trend of building data centers near power plants reflects a critical intersection of technological advancement and energy management, underscoring the need for strategic regulatory frameworks to address the implications for consumers and the broader energy ecosystem.