By Mark Jaffe, EUCI energy writer
U.S utilities have been caught “flat-footed” in the face of the soaring demand for electricity from data centers and manufacturing plants, according to a Wood Mackenzie study.
Wood Mackenzie is tracking 134 gigawatts (GW) of proposed data centers across the U.S., a 68% increase from the 50 GW in 2024.
Texas is home to 30 GW of proposed data center capacity followed by Virginia with just under 25 GW and Pennsylvania with about 10 GW. Other states with at least 5 GW of proposed capacity include Georgia, Ohio, Nevada, Arizona, Indiana, and Iowa.
“The scale of this new demand exceeds the industry’s supply capacity, and few measures are in place to prevent the erosion of grid reliability,” Wood Mackenzie said.
Requests by developers to connect to the grid are piling up and waiting times for connections have increased, especially since last October.
Interconnections have become the “choke point” for data centers, Wood Mackenzie said, and some developers have placed requests in multiple queues “hoping one of them will pay off.”
Fourteen utilities – including ones in Virginia, Georgia, Arizona, Nevada, and several in the Midwest – have publicly reported commitments to supply 64 GW of new data center capacity.
That is equal to a 12% increase in U.S. electricity demand.
These utilities have requests for another 132 GW of capacity for large loads for which developers have not made firm commitments. Another five utilities, while not disclosing commitments, say that have 188 GW in their queues with much of that with Oncor in Texas.
“If data centers are added faster than new power plants can be brought online, it could threaten grid reliability and lead to power outages,” Wood Mackenzie said.
One alternative developers have explored is “off-grid solutions,” such as a dedicated power plant “only to come up against technical issues.”
A major problem is that electricity demand can vary minute to minute in data centers, and that is a challenge for a single plant to manage, but easier to address on the grid.
“Relying on resources with no grid connection introduces enormous engineering complexity and risk, for which data center companies have limited appetite,” Wood Mackenzie said.
The grid comes with its own challenges, and there is a “fundamental mismatch” between how the data center industry and the utility industry work. Tech developers are working in a three- to five-year window, while the utility sector works on a 30-year view.
As a result, predicting future power needs of data centers is a challenge for utilities, as those demands could shift up or down over time with new technological developments.
For some utilities, their risk profile could change dramatically as a few major customers could account for as much utility infrastructure investment as all other customers put together.
Data centers’ chances with utilities on the grid also vary between vertically integrated regulated utilities and wires-only utilities relying on competitive power markets. The market-based systems are finding it harder to respond to data center demands.
“It is increasingly clear that some vertically integrated regulated utilities are best placed to supply the new demand,” Wood Mackenzie said.
Such utilities, which operate both generation and transmission assets, are in a better position to identify new customers, new generation needs, and plan for them. They can advise on sizing projects and on where to connect to the grid.
These utilities also may have local relationships, which could help promote a project and land available for development (such as old coal plant sites).
The regulated, wires-only utilities assess large interconnection requests to find what transmission upgrades are needed to serve the new loads.
Adding new generating capacity, however, is determined by the market bid prices for new power plants. “There is nothing, other than Adam Smith’s ‘invisible hand of the market to ensure that future supply will meet today’s demand commitments,’” Wood Mackenzie said.
The Electric Reliability Council of Texas (ERCOT), the state’s grid operator, plans to accommodate a 60% increase in demand, 50 GW, on the grid by 2030.
The forward price or contract energy price in ERCOT, however, is below the level needed to encourage new generation projects. “Several developers have recently cancelled plans to build new gas-fired generation in the region, despite special financing incentives,” the report said.
Higher bid prices come with their own risks. The PJM Interconnection, a grid operator serving mid-Atlantic and Midwestern states, relies on a capacity auction for new generation. In the July 2024 auction, the prices increased sevenfold from the previous year to $14.2 billion.
This sparked protests from elected officials and consumer advocates. Ratepayer advocates from Illinois, Maryland, and New Jersey petitioned the Federal Energy Regulatory Commission to order PJM to hold a new auction.
“While this is the way efficient markets work for all commodities, in electricity, a very localized market in which politicians can be blamed for lofty rates, there is much more likely to be political outcry as a result of large-load demand growth,” Wood Mackenzie said.
The PJM set a price floor of $175 per megawatt-day and a ceiling of $325 per megawatt-day for the next auction.
“The U.S. power industry is navigating a critical crossroads,” the Wood Mackenzie analysis said. “National security and economic development imperatives require new power supplies to power AI data centers and advanced manufacturing.
“However, the scale of this new demand exceeds the industry’s supply capacity, and few measures are in place to prevent the erosion of grid reliability, particularly in regions that lack vertically integrated regulated utilities.”
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