AI outlines the grid

Tech companies scouring the country for electricity to power artificial intelligence are increasingly finding there’s a waiting list.

In many places, the nation’s high-voltage power lines are running out of power, their connection points blocked by AI data centers, new factories or electric vehicle charging infrastructure.

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A mad race ensued to lock in the available power.

The tech industry is going from market to market looking for places with the ability to connect campuses that would consume up to a gigawatt of power — about as much as San Francisco uses. Some claims are four to five times that.

But the wires are getting so congested that some potential data center customers — who demand far more power than other users — are being told they may have to wait until the next decade to get the power they’re looking for. Others get less energy than they expected.

In Salt Lake City, the data center industry says there is a moratorium on larger projects, with the market closed to new business. Utility PacifiCorp says “significant levels of transmission and generation” may be needed for larger projects and is evaluating requests while avoiding spreading costs to other customers.

In Santa Clara, California, one of the tech industry’s hometown utilities, Silicon Valley Power, has stopped accepting requests for electric service for additional data centers. SVP said it faces transmission and power generation constraints it cannot solve until the early 2030s.

In Virginia, the world’s largest data center market, Dominion Energy said it is temporarily rationing power at new data centers until new transmission lines can be completed, even as the utility adds about 15 data centers a year.

The growing pains are also sparking fights over how to pay for potentially billions of dollars in grid upgrades.

In central Ohio, the Midwest’s largest power line will run out of transmission capacity in 2028. American Electric Power, which owns the line, has proposed a new higher electricity rate for data centers and cryptocurrency miners that would -block them as customers. for a decade. Companies are struggling.

“The amount of infrastructure required to make this happen is immense,” said Marc Reitter, president and chief operating officer of AEP Ohio. “We need certainty.”

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Thirsty for power

Artificial intelligence is a fast-growing source of spending by tech companies that say they are on the cusp of the biggest boom since the internet, with implications for national security and the economy. But a search on a generative AI platform like ChatGPT can use at least 10 times the amount of energy as a Google search. Data centers could use up to 9% of US electricity by 2030, according to the Electric Power Research Institute.

AI comes in tandem with other new strains on the grid: manufacturing plants boosted by tax policies under the Inflation Relief Act and a push in some states for more electricity for transportation, heat and heavy industry. It is the first significant increase in demand this century for the electricity industry.

For example, Phoenix has become a key data center market and is in the midst of a manufacturing boom. The Arizona utility is proposing to build 800 miles of new transmission lines or upgrades over the next decade as its existing transmission capacity will be “used up” before 2030.

Transmission constraints are the first sticking point many utilities point to, as these types of upgrades can take several years. But there are calls for additional power generation. Goldman Sachs estimates that about 47 gigawatts of new power generation capacity will be needed to support the increase in power demand for US data centers through 2030.

Analysts at Fitch Ratings say utilities also risk overestimating data center demand and overshooting given the inconsistent ways the industry assesses future demand.

Power to three New Yorks

In the heart of Ohio, American Electric Power’s 765-kilovolt bulk transmission system provides a backbone of reliable power that has been pumped into the new data centers. The amount of electricity used in the region will roughly double by 2028, which AEP can accommodate.

After 2028, AEP says it has three New York City data centers asking to connect to the network, but there’s no way to discern which are serious customers or just buying more markets. It stopped new service requests from data centers more than a year ago.

AEP’s Reitter said long-term contracts and higher rates would protect customers, such as homeowners and other businesses, if tech companies later walk away.

Companies of all kinds are wrestling with the idea.

The Ohio Manufacturers Association wants a study on transmission constraints and opposes AEP’s request because it would avoid the usual rate-setting process, including studies that look at the cost of providing new service.

Google said in regulatory filings that it has invested $6.7 billion in data centers in central Ohio and wants state regulators to investigate the best ways to handle the growth, managing any rate changes in a official charging case. The trade group Data Center Coalition, of which Google and other technology companies are members, suggested a minimum commitment of eight years, less than AEP’s request of a decade.

Meanwhile, the Ohio Consumers’ Counsel argued that residential customers “should not be forced to subsidize utility investments to house data centers operated by billion- and trillion-dollar companies.”

Akshat Kasliwal of PA Consulting Group, which advises technology and energy companies, said AEP’s problem is that it needs to invest in transmission to add more data centers. But if they charge higher rates to cover that cost, data centers could go elsewhere after the money has been spent, leaving other customers holding the bag.

Take-or-pay contracts

Other utilities are also looking for ways to protect customers from expensive network investments that data centers later decide they don’t need.

Xcel Energy has about 22 gigawatts of peak demand across its multistate system, but about 6.7 gigawatts of new data center demand, mostly in Colorado and Minnesota. Executives say the system will need transmission upgrades and new power generation, as well as a way to be fair to all customers.

Chief Financial Officer Brian Van Abel said in an August earnings call that the company would consider things like take-or-pay contracts that require data centers to pay for a minimum amount of power, regardless of how much it has been used for a long time.

Arizona Public Service tests the seriousness of a project by telling new large customers that it places minimum thresholds on bills to cover the cost of the necessary investments.

“Some customers may shy away from these commitments,” said Ted Geisler, president of APS, “and that’s a good indicator for us that maybe they’re not yet as engaged as others.”

Andy Cvengros, managing director of real estate services firm JLL, said utilities are getting wise to speculative power demands from everyone, whether from farmers with land along a transmission line or private equity investors. Applications don’t always have solid projects with tenants behind them.

“We have companies that didn’t exist 24 months ago that are now asking for 100 megawatts of power,” Cvengros said. “What is the real demand?”

Write to Jennifer Hiller at [email protected]

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