The surge in AI technologies and the massive build-out of data centers in America have had the biggest tech corporations scrambling for grid connection and reliable power supply to power the technologies of the future.
Most of the giant corporations want their power sources to be as clean as possible-preferably all renewable. But utilities are struggling to meet soaring demand from data centers while keeping reliable operations for all the customers in the areas they serve. As much as Amazon, Microsoft, and all other tech giants want solar and wind to power their operations, the lead times to new grid connections could be longer than they would like.
And so technology firms have started asking around for other sources of energy, such as natural gas, which currently delivers about 43% of U.S. utility-scale electricity generation. Definitely not as clean as solar and wind, but beggars can't be choosers if the tech firms want to keep their data center construction and AI development timelines.
Data centers, especially those powering generative AI and cryptocurrency mining, are not the only energy suckers in recent years. The onshoring of manufacturing of tech components and equipment, including semiconductors, hydrogen electrolyzers, and other factories springing thanks to the Inflation Reduction Act incentives are also straining U.S. grids. Utilities and regulators have raised significantly their forecasts for peak power demand in the coming decade.
Power Demand Surge
After more than a decade of flatlining power consumption in America, the AI boom and the chip and other tech manufacturing are leading to higher U.S. electricity demand. Related: OPEC Sees No Need for Policy Change Proposal at Next Week's Meeting
Consulting firm Grid Strategies published a report earlier this year analyzing data from utilities' regulatory findings. The analysis found that over the past year, grid planners nearly doubled the 5-year load growth forecast, the key drivers being investment in new manufacturing, industrial, and data center facilities.
"The U.S. electric grid is not prepared for significant load growth," Grid Strategies said in the report, noting that a recent "surge in data center and industrial development caused sudden, shockingly large increases in 5-year load growth expectations."
Dominion Energy - which serves Virginia's Eastern Loudoun County, dubbed Data Center Alley and the world's "largest data center market," - has said that "The big drivers of current and future growth include: migration to the cloud as companies outsource information technology functions, smartphone technology and apps, 5G technology, digitization of data, and artificial intelligence."
So explosive is the growth that Boston Consulting Group (BCG) says that data center electricity consumption accounted for 2.5% of the U.S. total (~130 TWh) in 2022 and is expected to triple to 7.5% (~390 TWh) by 2030.
"That's the equivalent of the electricity used by about 40 million U.S. houses - almost a third of the total homes in the U.S." said BCG.
Globally, electricity consumption from data centers, AI, and the cryptocurrency sector could double by 2026, the International Energy Agency (IEA) said in its Electricity 2024 report earlier this year.
After consuming an estimated 460 terawatt-hours (TWh) globally in 2022, electricity consumption from data centers could reach more than 1,000 TWh in 2026-roughly the same as Japan's total electricity consumption.
Depending on the pace of deployment and AI and crypto trends, the additional electricity consumption of data centers in 2026 compared to 2022 would be roughly equivalent to adding at least one Sweden or at most one Germany to demand, the IEA says.
So, increased power supply will remain a big need for the U.S. data center industry in 2024, commercial real estate investor CBRE says.
"Congestion, interconnection and build-out issues currently are limiting much-needed new data center development. Congestion on the grid has caused electricity costs to fluctuate wildly in times of high demand," CBRE said in its U.S. Real Estate Market Outlook 2024.
'Tech Not Waiting 10 Years'
CBRE Research said in September that U.S. data center construction continued to surge in 2023, but rising costs, labor shortages, and limited available power have extended project completion timelines. Power availability is more constrained, extending construction timelines by two to four years and in some cases by as many as six years. If new or upgraded transmission lines are required, the delays range from one to four years beyond the delivery timeline, CBRE notes.
"Tech is not going to wait seven to 10 years to get this infrastructure built," Toby Rice, chief executive at the top U.S. natural gas producer, EQT, told The Wall Street Journal in an interview on the sidelines of CERAWeek.
"That leaves you with natural gas," Rice said, noting that at the Houston conference representatives of technology firms had approached him about buying gas from EQT and asked how fast they could get it.
At the end of last year, the North American Electric Reliability Corporation (NERC) said that the growth rates of expected peak demand and energy had risen significantly since 2022, reversing a decades-long trend of falling or flat growth rates. Electrification and projections for growth in data centers and electric vehicles are contributing to the higher forecasts.
NERC's 2023 Long-Term Reliability Assessment (LTRA) found that industry faces mounting pressure to keep pace with accelerating electricity demand, energy needs, and transmission system reliability as the resource mix transitions.
With electricity demand now expected to rise from a decade of flat consumption, Big Tech faces a dilemma-if they want to be the pioneers of AI technology, they may have to rely, at least to some extent, on fossil fuels, too.
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More