Data Center Energy Demand: Challenges and Solutions

June 10, 2024

Data centers play a vital role in our modern world, enabling the advancements we rely on daily, from cloud computing to AI-driven technologies. As these technologies become increasingly integrated into our lives, the demand for electricity to power data centers naturally escalates. Notably, leading tech companies like Microsoft, Google, and Amazon are at the forefront of this demand, driving innovation and progress.

While this presents a challenge for the electric grid, competitive energy markets can play a part in the solution. These markets encourage innovation and efficiency, assisting the growing energy needs of data centers are met sustainably and reliably.

Escalating Energy Demands

For the first time in decades, energy demand in the U.S. is projected to grow substantially. According to GridStrategies, “The nationwide forecast of electricity demand shot up from 2.6% to 4.7% over the next five years.” The Electric Power Research Institute (EPRI) anticipates that data centers will consume between 4.6% and 9.1% of U.S. electricity by 2030.

To put this into perspective, EPRI found that a single ChatGPT request uses 2.9 watt-hours – ten times the electricity of a traditional Google search. As AI applications like ChatGPT proliferate, the energy required to support these technologies will only increase.

The Utility Challenge

Utility solutions in monopoly states that have not yet restructured, often involve increasing the use of fossil fuels, which raises costs for ratepayers and contradicts global emission reduction goals. For instance, more than half of the world’s data centers are based in Virginia, where Dominion Energy, the state’s largest utility, has proposed adding new gas plants to its long-term plans. Similarly, in Georgia, utility regulators have approved plans to increase gas capacity to meet rising energy demands. However, these proposals clash with many technology companies that have net-zero emission goals like Google, Apple, and IBM.

Dominion has previously informed data center operators in Virginia that there will be delays in powering new facilities due to constraints on the utility’s transmission infrastructure. The utility also warned data centers in South Carolina that it lacked capacity to meet their needs and would be “fine” if the company did not pursue data centers as customers.

The Role of Competitive Energy Markets

Competitive energy markets present a potential solution to the growing energy demands of data centers. In competitive markets, large commercial and industrial companies like Google and Meta can purchase renewable power to meet their sustainability goals and participate in programs that enhance grid stability.

Matt Brakey, president of Brakey Energy highlights Ohio’s competitive energy market as a proven solution to high energy demands. Many companies have chosen to locate their high-electricity demand projects in Ohio because of this market’s flexibility and efficiency. 

Demand response programs are a crucial tool in managing energy consumption. These programs allow large companies to reduce their electricity usage during periods of high prices and grid congestion. Data centers are one of the few energy-intensive users that has the capability to fluctuate their energy usage to participate in these programs.  For example, during a recent winter storm, Ohio’s largest energy users, including data centers, responded to price signals and interruption notices by temporarily taking their services offline. This action helped prevent potential grid failures. High energy users can also use demand response to achieve cost savings when prices are high.

Legislative and Regulatory Responses

A recent article from E&E News sheds light on the ongoing legislative and regulatory efforts aimed at tackling the environmental issues surrounding data centers. 

In Michigan, state Rep. Joey Andrews has introduced legislation to offer data centers a sales tax exemption, suggesting that such incentives are important despite the strain on the electric grid. This has led to discussions with environmental advocates who are concerned that energy-intensive data centers could affect the state’s renewable energy targets. Michigan only allows 10% of customers to shop on the competitive energy market with a long queue of additional customers that have applied for access. The rest are beholden to the limited energy solutions presented by their local utility. 

In addition, South Carolina lawmakers recently deliberated on a proposal to restrict data centers from accessing discounted power rates. Despite its passage in the House, the proposal was ultimately rejected by a Senate committee.

There is no need to curb the growth of data centers or compromise on environmental commitments. Utility monopoly states can look no further than to some of their neighbors with competitive energy markets.

Looking Ahead

The escalating energy demands of data centers present significant challenges, but competitive energy markets, the optionality they provide and the proven success of demand response programs offer promising ways to address these demands sustainability.

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