The recent surge in energy demand, driven by data centers mostly needed for artificial intelligence (AI) and the resurgence of US industry, is posing challenges for utilities and regulators across the country amidst an already ambitious energy transition. If the transforming grid is a traffic jam during highway construction, then data centers are a large convoy of trucks with urgent deliveries pulling into the on-ramp. This confluence of factors creates a gridlock, where utilities and regulators are overwhelmed working to modernize and decarbonize the grid, while managing queues of generators and new loads seeking interconnection, all bottlenecked at the same constraint.
E3 is supporting a wide range of clients on data center issues across public and private sectors on a diverse set of topics like data center policy analysis, load forecasting, rate design, interconnection support, resource planning, strategic siting, and clean energy procurement. The multiple perspectives from our work and client base motivated the creation of this whitepaper. Download it in full here.
In this paper, we seek to:
- Ground the conversation in key facts and historical context,
- analytically illustrate the wide range of potential demand and supply outcomes, and
- offer innovative but implementable ideas to address challenges and leverage opportunities for stakeholders.
Data center demand is forecasted to be extremely large – many grid planners have doubled and even tripled their forecasts, and many expect peak demand growth of over 35 GW through 2028. Projections vary dramatically with potential for extreme growth on the higher end, but the scale, shape, and geographic distribution depend on a number of factors, such as how AI is used and potential efficiency improvements. However, even if the demand growth for data centers flattens or even reverses, this is likely only the first wave of major U.S. load growth; the energy sector should prepare for subsequent waves driven by strong industrial policies and electrification of transportation, buildings, and industry. To illustrate how this new demand could be met amidst today’s supply challenges, E3 developed high-level analyses contextualizing the load against existing grid headroom, illustrating potential generation buildouts, and examining historic thermal retirements, varying renewable energy goals, and reliability constraints.
Planning for load under uncertainty is nothing new, but the scale and speed of this load growth, combined with today’s supply side constraints, is unprecedented. These unique circumstances require a new paradigm – one that prioritizes integrated planning, collaborative partnerships, and innovative solutions – to avoid near-term unintended consequences and optimally capture long-term benefits. Data center load growth could be a positive for the industry if leveraged effectively, and the paper concludes with a menu of innovative strategies for large load customers, utilities, system planners, and regulators to navigate challenges, mitigate risks and capitalize on opportunities. While data center load forecasts are inherently uncertain, uncertainty is no reason for paralysis nor a reason to avoid making proactive decisions. The growth of data centers is not just a challenge to overcome; it is an opportunity to build a better electric system.
Download the full paper here.
This paper was prepared by Isabelle Riu, Dieter Smiley, Stephen Bessasparis, and Kush Patel. For more insights into how E3 can support stakeholders across the industry on the impacts and opportunities presented by new large loads, email kushal.patel@ethree.com.
