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October 4, 2024
KEY TAKEAWAYS
Global electricity demand from data centers, artificial intelligence (AI), and cryptocurrency is projected to double by 2026 compared to 2022 consumption—with an average annual growth rate of 3.4%—according to the International Energy Agency (IEA).
Domestically, the rapid expansion of data centers—propelled in large part by the growth of AI—has been the most prominent driver of recent energy consumption, alongside burgeoning domestic energy production and increased electrification of buildings and industries. The Electric Power Research Institute (EPRI) projects that data centers could grow to consume up to 9% of annual domestic electricity generation by 2030—more than double the amount of electricity they consume today.
The projected growth in electric power demand from data centers—coupled with concerns around noise pollution, water stress, and land use—has seized the attention of state and federal lawmakers alike, prompting new questions about how the U.S. electric grid can adapt. Despite investments from the Biden-Harris Administration to upgrade the grid, some experts warn that these investments alone are not enough to meet growing demand, and that comprehensive energy transmission permitting reform will also be needed.
Data centers are the physical infrastructure of the internet. These large facilities comprise routers, firewalls, and servers that allow the delivery of shared data and applications across wireless networks. Two decades ago, data centers were largely private, on-site facilities belonging to a single company. In more recent years, however, cloud service providers have bought out remote facilities in greater numbers and made them available for the shared use of multiple companies. Cloud data centers underpin our digital economy, secure financial transactions, and allow public services to operate on a daily basis.
Inside a data center in Southfield, Mich. │ Image credit: Wikimedia Commons
The largest cloud data centers, called hyperscale data centers, are typically run by companies such as Amazon Web Services, Google Cloud Platform, IBM Cloud, Microsoft Azure, and other sizable technology players. Local and state governments, including Maryland and Mississippi, offer generous subsidies and tax incentives to attract innovation from these big tech firms. However, some states with larger concentrations of cloud providers, such as Georgia and Virginia, have considered sunsetting such incentives due to the significant energy and water burden.
Much of the existing U.S. electric grid, which connects data centers to power sources via a large network of transmission lines, was built over 100 years ago and is largely fragmented. Its development was overseen not by one central authority, but rather by utilities that built out their own small-scale infrastructure to bring coal- and gas-derived power to local customers. This led to a lack of high-voltage, long-distance transmission lines necessary to bridge the gap between regional data center hotspots.
Clean energy investments from the Inflation Reduction Act (P.L.117-169) have catalyzed a wave of renewable infrastructure development. As of the end of 2023, “interconnection queues” of projects seeking grid connection totaled 2,600 GW in generation and storage capacity, with the bulk of that number coming from zero-carbon sources. But in order for these projects to meet the level of demand from data centers, they must overcome transmission inadequacies. In fact, meeting the Biden-Harris Administration's zero-carbon goals by 2035 will require building 75,000 miles of new high-voltage transmission lines—more than three times the circumference of the Earth.
In October 2023, the Biden-Harris Administration announced $1.3 billion in funding to build out transmission lines across six Western states. These interstate endeavors have been stalled by disagreements over which state government should take on the project costs, as well as by other regulatory challenges. Furthermore, navigating transmission projects through extensive permitting processes can take over a decade, giving investors pause. Many experts have called for an overhaul of the current permitting process.
State legislatures, public utilities, and service commissions have jurisdiction over various parts of the patchwork-like national grid, making reform at the federal level challenging. There are, however, Congressional levers available for both improving the national grid and curtailing data centers’ high energy demand and climate impacts.
Nuclear reactors, battery storage systems, and certain hydroelectric power plants are examples of dispatchable power sources: power sources whose output or supply can be promptly adjusted to meet electricity demand, effectively bolstering grid reliability and stability. In June 2024, President Biden signed the Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy (ADVANCE) Act (P.L.118-67) into law to accelerate nuclear reactor deployment and ensure that forecasted demand, such as that from data centers, can be met with clean power generation.
In addition to bulking up reliable power supply, policymakers and utilities can also work to reduce demand through demand response strategies like virtual power plants, as well as transmission upgrades. Some utilities have already found success with efficiency and demand response programs. For example, to manage peak demand, when a majority of consumers turn on their power at the same time, utilities might offer financial incentives for temporarily turning off water heaters when they are not in use, or shifting the timing of demand. These small adjustments can translate into large savings for consumers, in addition to improving grid reliability.
Congress is considering transmission permitting reform measures that could help improvements to the national grid keep up with the increasing power demand from data centers. The Energy Permitting Reform Act of 2024 (S.4753), sponsored by Sens. Joe Manchin (I-W.Va.) and John Barrasso (R-Wyo.), would accelerate and simplify permitting processes for building out critical grid infrastructure. The legislative package also includes Sen. John Hickenlooper’s (D-Co.) and Rep. Scott Peters’s (D-Calif.) BIG WIRES Act (S.2827/H.R.5551), which would require regional grids to be able to transfer the minimum requirement—either 30% of their peak demand, or peak transmission plus 15% of peak demand—amongst themselves.
If the Manchin-Barrasso bill becomes law, transmission capability could more than double within ten years. On the other hand, this bill could also bolster fossil fuel projects and hamper public participation processes. Over 360 environmental organizations signed a letter opposing the bill, concerned with the bill’s advancement of Liquified Natural Gas exports; support to oil, gas, and mining industries; and restriction of judicial review. The Senate Energy and Natural Resources Committee advanced the bill in July, but to secure its passage into law, both chambers will have to pass it and iron out differences before the close of the 118th Congress.
As data center growth continues into the next Congress and beyond, connecting clean energy resources to the grid will be critical to ensuring that technological innovation does not come at the expense of climate progress.
Author: Lindsey Snyder
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