The energy transition was the first trend to put the electric grid in the spotlight. Built for baseload generation rather than a swarm of wind and solar installations scattered all over the country, the grid and its expansion to incorporate more wind and solar became the main topic of transition discussions. Then came AI, and the conversation suddenly became really urgent. There is one pressing question, however. Who will pay for that expansion?
The U.S. electricity grid, like all national grids, was built out in the first half of the 20th century. According to critics, little has been done on it since then, making the grid as it is unsuitable for modern energy demand and supply trends. On the supply side, there are the wind and solar installations that do not behave like baseload power plants and need new transmission lines to connect to demand centers—a problem especially acute in European countries. On the demand side, there is Big Tech and its data centers that are already straining the grid’s capacity and are about to strain it even further.
Big Tech majors have in recent months announced plans to spend a collective $600 billion in their artificial intelligence business this year alone, Reuters’ Ron Bousso noted in a recent analysis of the electricity needs of the industry and the challenges it faces in finding this electricity—and the grid being able to supply it. This is a massive amount of money being committed to a business that seems to require more electricity than there is readily available—and consumers are feeling the pinch in their monthly bills.
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Opposition against data centers has been growing among people in states with high concentrations of such facilities as they drive electricity prices higher. State governments and Washington have in response been mulling over ways to reduce the burden on voters, with President Trump earlier this year suggesting Big Tech build their own power plants.
“We have an old grid. It could never handle the kind of numbers, the amount of electricity that’s needed. So I’m telling them, they can build their own plant. They’re going to produce their own electricity. It will ensure the company’s ability to get electricity, while at the same time, lowering prices of electricity for you,” the U.S. president said in February.
The idea of making Big Tech take care of its own electricity supply has been around for a while now, as electricity demand soars and bills follow. Big Tech firms are requesting a supply of hundreds of gigawatts of power for data centers as they connect to the U.S. grid. Power utilities, meanwhile, are allocating billions of dollars on grid expansion in response to the AI-driven surge in demand. Again, the question arises, who will pay for that expansion? Passing the cost on to customers is standard practice for any business, but there is a limit to which an additional cost can be passed on to customers before those customers rebel.
“Data center developers have said they want to pay their fair share, but the question is, what does fair mean?” Timothy Fox, managing director at ClearView Energy Partners, told the Wall Street Journal recently. “Cost allocation for transmission has always been a very complex and difficult question. It’s an imperfect science.”
The publication noted the case of PJM, the grid operator with “the largest concentration of data centers in the world”, whose answer to the question of who will foot the bill was to split the costs 50:50 between all customers in the 13 states it serves and between regions. Unfortunately, this only solves part of the problem—the transmission part. There is also another part—generation capacity.
Reuters’ Bousso wrote that as of December, Texas’s grid operator, ERCOT, had applications seeking as much as 226 GW of large-load electricity supply, mostly coming from data center operators. This is three times as much as the existing power generation capacity supplying data centers, Bousso noted. In PJM’s area of operation, electricity shortages are on the cards, per the grid operator itself. Because saying that data center operators should generate their own electricity is all very well, but building the generating capacity takes time—and gas turbines are in short supply.
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Big Tech has become a big fan of gas generation recently, as they discovered their power purchase agreements with wind and solar operators are not enough to secure the kind of reliable power supply their data centers need. But even gas power plants take time to build, and that appears to be time that industrial power consumers from the information technology industry don’t have, especially including the wait times for gas turbines, which span years due to the sudden surge in demand.
What all this suggests is that policymakers would need to make an important decision, and soon. They will have to choose between encouraging the intensive growth of Big Tech’s AI business and shielding consumers from sky-high electricity prices.
By Irina Slav for Oilprice.com