Grid Strategies discusses rise of data centers and short-term challenges for hyperscalers

In an interview with NPM, Grid Strategies President Rob Gramlich discussed the meteoric rise of data center load growth over the last year as well as the challenges facing hyper-scalers and other renewable energy stakeholders as these installations eat up power and demand.

Gramlich says he started tracking the rise of data centers in late 2023 when the rise of AI like ChatGPT began forcing data center procurement teams to dramatically increase their size and scale of their operations. Grid Strategies’ study culminated in its “The End of Flat Power Demand is Over” report that indicated a sharp uptick in power demand across the nation, which he says had been largely flat over the last two decades.

“Those figures are probably under forecast, too,” Gramlich adds. “The facts on the ground indicate higher demand than what regulatory filings are indicating.”

Gramlich says the biggest pockets of data center growth have been pronounced starting with Loudoun County, Virginia and spreading to areas like Georgia where companies seek to take advantage of Southern Company’s Vogtle nuclear plant and Ohio where they seek to utilize American Electric Power’s 765 kV high voltage transmission network. Google, for instance announced last week that it was planning to invest an additional USD 2.3bn into three data center sites.

While Gramlich says other key areas like Oregon and Arizona have also been on the rise, he predicts a more even spread among some of the most AI-focused center that do not have to be placed near urban populations for tasks like machine learning.

“They can be more spread out, which is good,” Gramlich said. “They aren’t going to get connected quickly otherwise.”

The rise of data center growth has led something of a feeding frenzy from some states, municipalities and utilities seeking to make themselves as attractive as possible to data center companies. Gramlich says despite the power constraints that can come with these installations, communities ultimately want to attract them for tax revenue like any other business.

“This really isn’t any different than what we see with trying to attract any other business except that these installations are huge and growing,” Gramlich said. “They’re ultimately a new opportunity for communities to get that economic development.”

This can be a problem for some states with their own climate goals that are already seeing renewable capacity eaten up by corporates and out of state uses rather than going toward their own targets. This is particularly pronounced in Illinois where already only 16 percent of its annual renewable capacity is being dedicated toward the state’s own renewable energy goals.

Another key issue is the sheer amount of power needed for data centers, which traditionally require a 24/7 power connection. Gramlich says companies are taking a variety of approaching to manage this with some looking at the system level rather than the individual center level in cases where it’s less important for each installation to maintain constant power.

“I think AI centers could be interruptible,” Gramlich says as an example. “If you’re really just teaching your algorithm things, then it can take a coffee break from that and it’s not a big deal.”

Gramlich says companies are also focusing on diversifying their fleets to include a mix of solar, wind and batteries, though even then he surmises that will probably only fill up to 75 percent of their power needs. To that end, he says many are investing in “clean firm-type resources” like longer duration storage or clean hydrogen that Gramlich characterizes as “aren’t really commercial scale yet.”

What is clear, however, is that companies are “well past” the era of buying RECs, which Gramlich notes “weren’t really additive or reflective of the energy actually being consumed at the site.” Instead, he says companies are trying to get closer to time and place matching of the actual consumption at these sites, which he says could lead to further deals like Microsoft’s recently announced 10.5 GW frame agreement with Brookfield to power its facilities.

Ultimately, Gramlich says he views the shortage of available renewable resources to be a “near-term issue” that “shouldn’t really be a competition in the long run.”

“It’s a big country and we can put a lot of wind and solar in it,” Gramlich said. “I think a lot of these states that passed these energy climate laws would rather have these facilities here in the US than other countries, especially less friendly ones. A lot of these data centers have some sensitive data sitting in them.”

On the other hand, Gramlich says he considers ongoing competition for electrical equipment, much of which overlaps between data center installations and renewable project developments, as “the major constraint” that could lead to further curtailment.

“A lot of the electrical equipment for data centers is the same for wind, solar and storage, which were already seeing a huge demand increase for equipment,” Gramlich said. “Now you have GW-scale data centers going in, so there are severe backlogs. And we are not alone in this economy as Europe is also increasing their demand for equipment, and they have utilities with government backing. That is the major constraint right now because it is international.”

*This story was originally published exclusively for NPM subscribers last month.

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