As electricity grid operators across North America face an onslaught of new data centres demanding reliable power, two new reports warn better planning is needed to meet that demand, reduce emissions, and avoid negative consequences for consumers.
Demand for electricity will grow 15.8% over the next five years compared to earlier predictions of 4.7%, mostly driven by the surge in data centres for artificial intelligence (AI), predicts RMI, formerly known as the Rocky Mountain Institute.
A ‘Power Couple’ Strategy for Renewables
To handle this surge, new data centres should be built at existing gas interconnection points—such as infrequently used peaker plant sites—where renewables can be added “in ways that don’t affect the rest of the grid, that don’t force you to do upgrades,” Uday Varadarajan, senior principal with RMI, told NBC News
“If you have to build a whole lot of new wires and a whole lot of new generation then everybody would have to pay for that,” he added.
Vardarajan is one of three authors of an RMI study that calls this co-location strategy a “power couple”—where a large electricity consumer is paired with new solar, wind, and battery resources located near an existing generator with an already approved interconnection. This matchmaking approach could quickly add more than 50 gigawatts (GW) of new data centre loads with 88% carbon-free energy on average, they report.
“Moreover, they can do this while reducing system-wide emissions, improving affordability, and maintaining grid reliability,” the authors write.
“The thing that makes this so compelling is that this clean energy can be paid for by the data centre providers, and what they’re exporting to the grid is largely very cheap excess clean energy that they don’t need,” Varadarajan said.
Data Centres as Grid Assets
The American Council for an Energy-Efficient Economy (ACEEE) released a report late last year suggesting that data centres offer a solution for growing power demand. They can become assets rather than threats—if regulators encourage data centre developers to invest in battery storage and install smart meters to forecast and manage energy supply.
Data centres require “highly reliable grids” or access to stable energy sources off the grid to meet their requirements for 99.999% availability—known as the “five-nines” standard, writes research and analytics firm Rystad Energy in a recent report. A data centre can only be down for less than five minutes and fifteen seconds annually to meet reliability requirements—about half the time it takes to brew a pot of coffee.
Gas is emerging as a critical power source for firm and flexible power, write report authors Marina Domingues, Rystad vice president and head of new energies research in the United States, and analyst Surya Hendry. Integrated oil companies are building gas plants to meet the moment, but renewables will still play “an integral role in meeting rising demand.”
“Over two terawatts of potential energy projects, mostly made up of renewable resources, await grid interconnection approval,” say Domingues and Hendry, but approvals have historically been unable to keep up.
Rising Energy Costs and Political Pressure
Meanwhile, electricity costs in the U.S. are heading for a 30-year high, with power-hungry AI data centres driving the trend, reports Politico. Depending on regional factors, clean power may be easier and cheaper to ramp up than gas, said Michelle Solomon of the research firm Energy Innovation. She added that 90% of new resources added to the U.S. grid last year were solar or wind, with more waiting to connect to the grid, “whereas with a gas project, you’re going to have to be starting from scratch.”
On the policy front, Donald Trump had promised to cut energy prices in half while campaigning for the U.S. presidency, mainly by ramping up gas production. Some analysts question whether his administration is following the Project 2025 energy strategy devised by the conservative Heritage Foundation.
A Project 2025 tracker shows that seven of its 19 proposed objectives for the U.S. Department of Energy have already been completed, with two more in progress—including a push to eliminate the Office of Grid Deployment, which oversees grid modernization. U.S. News and World Report wrote in mid-February that 12% of the office’s staff had been laid off. These employees were responsible for making the grid “resilient to extreme weather and able to transmit power from clean energy and fossil fuel-fired power plants.”
AI Power Demand Could Be a Bubble
Artem Abramov, head of new energies research, and Elliot Busby, vice president and head of media and communications for Rystad, wrote in January that surging power demand calls for strategic investments in grid infrastructure alongside a balanced reliance on various energy sources and expanded energy storage.
Constraints to this approach include the lack of a domestic semiconductor supply chain in the U.S., with supply further impacted by tariffs. Abramov and Busby say fibre optic cable availability, water for cooling, and diesel generators for backup power “will have to be maintained if buildouts are to continue uninterrupted in the U.S.”
But even as grid planners brace for soaring electricity needs, some analysts warn the AI boom may not last. In an interview with economist Paul Krugman, Jim Chanos—the investment analyst known for predicting the collapse of Enron—said an AI bubble is forming, and that “returns on invested capital are really now beginning to turn down pretty hard for these companies.”
“But the problem is that it’s not so much the data centres that depreciate, they do because of the air conditioning and all the guts of them. It’s the chips that you’re paying $50,000 a piece for that are being leapfrogged by the same company,” said Chanos.
Adding to the uncertainty, Reuters reported in February that Microsoft had cancelled plans for “a couple of hundred megawatts” of capacity with two private data centre operators, citing “supply chain checks.”
