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As global IT demand reaches unprecedented levels, many predict that electric grids may struggle to keep pace, potentially stifling the growth of the data center industry. While it’s true that a perfect storm of factors has combined to strain the grid and limit capacity in certain regions, we believe the situation is manageable. In this blog, we summarize solutions and strategies to help data center developers overcome these challenges, secure permits, build with reliable power, and operate sustainably. For more in depth guidance, see our new report “The Looming Power Crunch: Solutions for Data Center Expansion in an Energy-Constrained World.”
Will the world run out of power?
The notion that we will run out of power in a few years is an overstatement. While it is true that a “perfect storm” of factors HAS combined to strain the grid and limit or exhaust capacity in SOME regions, there are viable options for data centers to continue building as utility companies take steps to mitigate these challenges through grid modernization and expansion efforts. Data center companies can help fund these activities to speed up grid connections. Closely collaborating with utility companies from the early planning stage on through to the operation of the site, is critical to success. High-profile headlines often attribute the looming power crunch to insatiable demand from data centers. Of course, these facilities are crucial for training AI models, mining cryptocurrency, and driving the digitization of our lives. Despite this, it is important to understand that data centers are not the sole contributors to this issue. Other energy intensive industry sectors, electrified heating systems, along with electric vehicles are also drawing significant power.
Similarly, there are bureaucratic and time-consuming processes of modernizing electrical transmission and distribution capacity. These are coupled with the need to connect new renewable generation sources and retire carbon-intensive plants, which also play significant roles. This remix of sources – and high-demand users places pressure on existing utility systems.
Customer grid connection queues in energy-constrained regions can now take three to five years. Moreover, the shutdown of older fossil fuel-based generation sources in favor of intermittent renewables can destabilize the grid and force large customers, like data centers, to periodically reduce their load to maintain balance.
Data centers can bridge the gap
Data center companies in grid-constrained regions are adjusting their energy procurement strategies by considering alternative prime and backup power sources, such as natural gas turbines, hydrotreated vegetable oil (HVO) fueled generators, wind, solar, fuel cells, and battery energy storage systems. Utilities, aggregators, and governments are providing incentives, financing, and market support to drive adoption and improve the ROI of these approaches. To this end, the Electric Power Research Institute (EPRI) just launched a big initiative called DCFlex that’s aimed at enhancing data center flexibility and grid reliability. The founding members include Compass Datacenters, Constellation Energy, Duke Energy, the Electric Reliability Council of Texas (ERCOT), Google, Meta, New York Power Authority, NRG Energy, NVIDIA, Pacific Gas and Electric Company (PG&E), PJM Interconnection, Portland General Electric, QTS Data Centers, Southern Company, and Vistra Corp. “DCFlex will coordinate real-world demonstrations of flexibility in a variety of existing and planned data centers and electricity markets, creating reference architectures and providing shared learnings to enable broader adoption of flexible operations that benefit all electricity consumers.”
In many cases, power-constrained areas align to often densely populated areas. This adds local scrutiny over issues like generator noise, pollution, and land and water use. That’s why it is essential to rethink site selection, emphasizing power availability as a crucial factor. Building in less energy-constrained regions might force changes in energy procurement strategies, weighing the tradeoffs between lower latency and/or higher labor availability against the cost and time to secure enough power.
Early collaboration with utility companies is vital. Utilities can provide accurate data on costs, current and future power capacity, carbon intensity, power quality, and reliability. They can also help pinpoint optimal locations, simplifying the permitting process and aiding in efficient electrical system design, load management, and grid stability. This collaborative planning can accelerate the construction process and ensure new data centers are built more sustainably and with sufficient power.
Considerations for prime and backup power sources
Data center developers forced to build in energy-constrained areas should consider deploying or locating near alternative prime power sources and energy storage systems. In fact, the electric utility often requires the data center to be flexible with its loads in order to connect to their grid. There are two primary use cases for “bringing your own power” (BYOP):
1. Electrical capacity exists but requires mandatory demand response and grid services participation:
On-site energy storage systems like lithium-ion battery energy storage systems (Li-ion BESS) are preferred. They provide additional backup power, decrease reliance on diesel generators, and enable market participation and demand charge avoidance. For areas where diesel generators cannot be used due to environmental concerns, Li-ion BESS offers a feasible solution. For more on BESS solutions check out these two assets: Understanding BESS: Battery Energy Storage Systems for Data Centers (for a detailed view) and The Case for BESS: Adding Energy Storage to Improve Cost, Resiliency, and Sustainability (executive overview).
2. Electrical capacity does not exist, and there is a need to build and operate before capacity becomes available:
Reliable and consistent prime power generation is essential. Natural gas turbines are a commonly used option due to their technology maturity, cost-effectiveness, reliability, and scalability. Fuel cells, though more expensive and less responsive to load changes, offer lower emissions. These prime power sources can be combined with on-site renewables like wind and solar and energy storage to enhance resilience, independence, and cost optimization.
Additionally, small modular reactors (SMRs) and microgrid providers are emerging as potential alternatives for data centers needing to bypass grid connection queues or improve resiliency and sustainability. Yet, this technology is only beginning commercialization.
Alternatively, there are companies building massive megawatt industrial parks involving both renewables and prime power generation sources.
These “parks” bring additional sources to the mix, including natural gas generators and fuel cells in the 300 MW to 600 MW range. These may serve larger data centers and help them avoid grid connection queue lines. These industrial parks of power may be grid connected already with microgrids as a backup or they may be permanently islanded. These microgrid companies will provide power as a service as well.
Moving forward
While headlines may paint a picture of an impending power crunch that could cripple data center growth, we believe the situation is more nuanced. Viable solutions exist to navigate these challenges. Here’s a brief summary of our guidance:
Reconsider your site selection strategy: Focus on power, water, space availability, and latency/labor tradeoffs.
Collaborate with your utility company early: Align on goals and objectives to enhance efficiency and understand possibilities.
Allow utility companies to participate in site selection and design: This collaboration can simplify the permitting process and accelerate construction.
Support utility company modernization/expansion efforts: This will help achieve faster connections.
Encourage utility companies to promote data center projects: This will address public and government concerns for quicker permitting.
Design for sustainability: This will improve performance and public acceptance.
Be sure to read The Looming Power Crunch: Solutions for Data Center Expansion in an Energy Constrained World for more details and follow me for updates on the data center infrastructure, software and utilities market.
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