Recent years have seen data center priorities switch. Where power was once one of the more straightforward elements of a data center project, it has arguably become the most critical issue of consideration before a project can get off the ground. A rush to grab capacity amid an AI boom, combined with net-zero goals creeping closer, is seeing data center fi rms have to seriously look at not only when and where they can get power, but closely consider the source of those electrons. In the short term, most operators will likely take any power they can get, but amid an ongoing grid transition to renewable power, any company serious about its netzero goals is going to have to think long and hard about power in the near future.
A changing grid mix, increased data center capacity
Energy demands are up. Electricity consumption of data centers (excluding cryptocurrencies) is estimated to have accounted for about 1-1.3 percent of global electricity demand in 2022 and it could see this share rise to a range between 1.5-3 percent by 2026, according to recent International Energy Agency (IEA) projections.
In the US, IEA says data center energy use in 2022 is thought to have ranged between 1.3 percent and 4.5 percent of the country’s total consumption – though the agency notes reliable data in aggregate is hard to come by.
Data center capacities since then have only ballooned as more AI-focused facilities have come online. Data center developments in the US drove a one percent increase in commercial electricity usage across America over the last four years, the US Energy Information Administration (EIA) said in its own recent report, with electricity demand up by 14 billion kilowatt hours (BkWh) in the US between 2019-2023. In areas without major data center development, energy demands largely decreased.
Utilities are seeing huge spikes in energy demands from data center customers. Xcel Energy revealed during its Q2 2024 earnings call it has a pipeline of 6.7GW of new data center projects in the works; another provider, Oncor, said it had seen 59GW of data center connection requests. AEP said it has 15GW of data center loads coming online by 2040, while NextEra has 4GW of data center load in its pipeline. PG&E has said more than 3.5GW of data center capacity is due to come online in California over the next five years.
Alongside this increased demand, the grid is changing. More renewables are coming online, and older fossil fuel power plants are being retired. According to the IEA’s 2024 mid-year report, solar power alone is expected to meet roughly half of the growth in global electricity demand to 2025. Together with wind power generation, it will make up almost 75 percent of the increase. But the transition isn’t happening evenly, smoothly, or at the same rate that data centers are being developed.
NERC published its annual Long-Term Reliability Assessment in December. In it, the non-profit warned of potential capacity shortfalls amid rising peak demand that the planned retirement of 83GW of fossil fuel and nuclear generation over the next 10 years could have on the grid. NERC cautioned that the Midcontinent Independent System Operator (MISO) area – which includes data center markets including Illinois, Indiana, Iowa, and parts of Texas – is projected to have a 4.7GW shortfall if expected generator retirements occur, despite the addition of new resources that total more than 12GW.
Marc Ganzi, CEO of DigitalBridge, recently warned that data centers will run out of power in the next two years. During his company’s Q1 earnings call, he said: “We’re kind of running out of power in the next 18 to 24 months. If you think about how much power remains on the US grid, we’re down to less than 7GW on the US grid.”
“It’s power transmission and distribution that are constrained. Transmission grids are capacity-challenged. And imagine, if you think it’s hard to get a new cell tower permitted, think about building new transmission towers or substations.”
Good times for renewables amid data center demand
Despite the warnings of shortfalls, times are good in the renewable sector. “It's absolutely booming,” Oliver Kerr, managing director for North America at Aurora Energy Research, tells DCD. “Things were going well before, but the Inflation Reduction Act (IRA) has really supercharged the sector. The number of projects that are looking to connect to the grid in the next few years are astronomical.”
Silicon Ranch is one of the companies taking advantage. It operates more than 150 solar projects across 15 states, with 5GW in operation and development. Data center customers include Meta, Microsoft, and Tract.
“We're seeing continued significant interest as the sustainability commitments are there from data center companies, the ability to meet those goals is extremely important,” Silicon Ranch co-founder and chairman of the board, Matt Kisber, tells DCD.
John Wieland, chief development officer at Leeward Renewable Energy, adds that his company has seen “explosive” growth in demand. It has 3GW of renewable power in operation across more than 29 projects, with 2 GW in execution and another 20+ GW in development, and supplies the likes of Microsoft and Digital Realty.
“We're not seeing any slowing indications from these hyperscalers and colo providers,” Wieland says.
Too much of a good thing
But the renewable energy industry is becoming a victim of its own success. Wait times for new solar and wind projects to be connected to the grid have risen sharply.
“Historically speaking, there have been very little in the way of financial commitments that developers have to make to put a project in the interconnection queue,” says Aurora’s Kerr. “They have the option to build rather than the obligation to build. And that became a vicious cycle.“
"The more people putting projects in the queue, the more that incentivized other people to start trying to put their projects in the queue to secure a spot. That dynamic feeds on itself, and you get a lot of speculative projects.”
Wait times range from around two years in some locations to eight in others – driven largely by a combination of the complicated studies grid operators have to undertake to assess the impact developments will have locally and the time it takes to physically connect so many new projects to the grid.
Power projects seeking to connect to the US grid increased by 27 percent in 2023, according to a report from the Department of Energy's (DOE) Lawrence Berkeley National Laboratory (LBNL). The report suggests around 2.6TW of projects have joined the interconnect queue – around twice as much as the US's existing generating capacity.
The majority of that was solar or battery – around a 1TW each. The number of new projects joining the queue has continued to ramp up, from 561GW in 2021 to 908GW in 2023. But the average length of time projects take to deploy is also increasing; going from interconnect study to commercial operations is now estimated to take five years, compared to two back in 2008.
In California, total energy generation capacity is about 200GW, half of which comes from renewable or low-carbon sources such as nuclear. As of last year, the California Independent System Operator (CAISO) network has an interconnection queue totaling more than 500GW of projects waiting to come online.
In Texas, grid operator ERCOT has seen the interconnection queue for grid-scale solar and battery storage projects swell to 355.4GW.
“If I wanted to build a project, starting in California today, it might be eight or more years before that project is actually delivering any power to the grid,” says Kerr.
Transmission – a problem for renewables and data centers
In April 2024 the US government set out a goal to upgrade 100,000 miles of transmission lines over the next five years in order to ensure the country’s infrastructure is ready to meet the needs of a grid that is heavily reliant on renewables and that is facing increased demand from data centers and electric vehicles.
Just 55 miles (88.5km) of high-voltage transmission were built in 2023, according to Grid Strategies, despite spending hitting an all-time high of $25bn. Some 90 percent of that investment was driven by reliability upgrades and equipment replacement. Only 125 miles of new transmission lines were built in the first five months of 2024 – all between Arizona and California. Another $92 billion is set to be invested in transmission over the next three years.
“Transmission is a challenge not just for solar, but all forms of new energy generation,” Silicon Ranch’s Kisber says. “Our transmission system is vastly undersized to serve the growth that is going to take place. If we're going to meet the energy needs to serve data centers’ and others' needs, we're going to need more transmission.”
Kisber, a former Tennessee Representative, likens the transmission to the interstate highway system: “It used to be easy to find an on-ramp or real estate around an on-ramp or off-ramp to the interstate. Today, it is a much more difficult challenge because it is built out, there's congestion in a lot of places, and fixing that congestion takes time. We have the same issues with our transmission system.”
Amid grid-wide congestion, renewable operators say digging into transmission maps and project queues is key to finding an advantage. These companies have whole teams looking for opportunities where queues are shortest and might have projects likely to drop out.
Leeward’s Wieland is hopeful change is coming. “It’s going to take a little time to work its way through, but I do believe the amount of projects in the queue in two years is going to be dramatically less,” he says. “And it's because of the procedures that have been implemented; the readiness milestones and the withdrawal penalties are getting to a point to where customers are not going to be able to speculate on positions as they once were.”
“There's so much economic development tied to the demand, and I think that's going to be the strong catalyst for the change.”
Can data centers be better at working with renewable companies?
Many of the grid issues are out of the hands of data center developers and operators. But one of the main ways to help ensure the electrons powering their data centers are green and continually flowing is to keep investing in renewable energy projects.
Cloud, data center, and telecoms firms remain major buyers of renewable energy. Amazon is the world’s largest corporate buyer of renewable energy globally, while Microsoft has said it has more than 20GW of renewable energy under contract.
Google and Meta have invested in gigawatts worth of renewable projects worldwide, and the likes of Equinix and Digital Realty have also purchased a significant number of renewable energy power purchase agreements.
Despite these efforts, Google has seen its emissions jump 48 percent in five years due to the company’s data center build-out and focus on AI. Likewise, Amazon’s 2023 ESG report saw its annual Scope 1 emissions rise from 13.32 million metric tons of carbon dioxide equivalent (MT CO2e) to 14.27m last year.
It is a similar story for utilities, with coal-fired and natural gas generation in the US expected to grow by around two percent and 1.5 percent respectively, leading to an increase in emissions, before dropping next year. After declining 8 percent in 2023, the US is expected to be one of the few advanced economies in 2024 where power sector emissions increase year-on-year, rising by slightly below 2 percent.
Ensuring new data centers’ energy demands are matched with renewables is key to net zero goals, but DCD was surprised to hear about the general lack of coordination with data center operators about where projects are happening.
At a time when the technology industry is grasping at any capacity it can get, it seems renewable operators are playing whack-a-mole and making informed guesses about where cloud and colo firms are developing projects.
“Access to clean energy is only component of their site selection criteria,” says Leeward’s Wieland. “We're not being told specifically where they are going before they conduct their site selection activities. It's more us figuring out where they're going, and being clever in how we cite our assets to serve their needs.”
Jesse Tippett, VP of power marketing origination at Adapture Renewables, said data center companies are “not always forthright with where they will be developing.”
He says: “If we do our homework right and happen to have projects in areas that they are looking at, then we're well matched and can do a deal. “It's a little bit of looking into the future and also hoping that we did our business development and siting right a couple of years back.”
Adapture runs 36 solar projects totaling 262MW across the US, with another 4GW in development, and counts Meta among its customers. Tippett says more trust between data center and renewable developers is needed to coordinate projects and ensure demand and capacity are well-matched.
Both sides need to be “very transparent about where they have projects,” he says. “By working together earlier, being mutually committed to having each other's best interests in mind, you can start to early on identify what could be an opportunity to work together.”
While Tippett acknowledges such hand-in-glove thinking might see companies give up opportunities to look for the highest bidder on projects, the assurance of a customer means developers can focus on finishing development and moving to the next project in parallel. Data center firms, meanwhile, get the reassurance of available renewable power, perhaps before a facility is even built.
Soaring demand for renewable power means data center firms are working with multiple providers across different markets to secure green electrons.
“I think there is a preference to do repeat deals with businesses where they have established relationships,” says Wieland. “However, given the demands, I also see there being a lot of opportunity across the market.”
When asked what data center operators are looking for in renewable partners, DCD is repeatedly told that certainty is a key factor amid so many speculative projects.
Kerr notes the industry measures many of these speculative projects in what’s referred to as "braggawatts;” projects that promise big numbers that they don’t deliver.
“They’re looking for companies with a track record and reputation for delivering on what we say we're going to do,” adds Silicon Ranch’s Kisber. “Silicon Ranch has delivered on every project we've contracted for. That element of certainty is extremely important.”
On-site generation & behind-themeter projects a solution?
The IEA report notes some data center providers are looking into on-site generation to circumvent grid connection challenges.
At the Aurora Renewables Summit in London in July, Bruce Huber, CEO of Alexa Capital, said that while the industry waits for interconnection reform, behind-the-meter (BtM) projects – where high customer loads are located at the same site as renewable projects – may be a good option for de-risking investments and avoiding connection woes.
Huber called BtM projects a “huge aspect” of his company’s funding: “It is real, and it is growing,” he said.
He used an example of a project in the MISO connection area around Ohio that is developing megawatt parks for industrial customers. “They're building these megawatt industrial parks, and then just adding and inviting more and more industrial customers to what are really behind-the-meter microgrids,” he said.
However, BtM or large-scale on-site renewable projects involving data centers are few and far between. Tencent has deployed a large-scale 10MW solar plant at one of its data centers in Tianjin; Amazon recently acquired a data center behind the meter at a nuclear power station in Pennsylvania; and several projects in Dublin, Ireland, have filed to place gas power generators on-site to circumvent a moratorium on new data center grid connections.
“BtM projects are something we're heavily focused on,” says Adapture’s Tippett. “If there's a real win-win, the data center and renewable asset can come online sooner; being colocated can shrink that interconnection timeframe.”
He notes that data center companies could look at building their own on-site renewable projects.
“There will be some BtM facilities, and maybe some of those will be built by the data center companies themselves,” he says. “It’s a great model, but it's a very challenging business.”
How (non-nuclear) BtM colocated projects might look for data centers is still unclear. Given the need for uptime and redundancy, it’s unlikely many operators would be willing to be entirely off-grid and reliant on wind or solar – even if longer battery deployments were available.
But some operators might be brave enough to try such a deployment if demand continues to outstrip supply. 2024 saw startup Aston partner with JLL to market self-contained, grid-independent ‘clean energy campuses’ to data center customers. The first campuses will apparently be located in Colorado, New Mexico, and Texas, with its existing development pipeline representing 2GW of power. Projects started in 2024 will go live in 2026.
“[BtM] projects are going have to become more common,” says Aurora’s Kerr. “For things like a data center, your biggest cost is power. If you're thinking about putting generation on-site versus buying from the grid, building your own power generation might be a fairly small part of the overall costs.”
“It makes sense to think about building generation on-site, and it just removes one of those worries that people have of not having suffi cient power.”
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