‘Phantom’ data centres muddy forecasts for US power needs
Developers are overstating energy needs and keeping projects alive even after they are no longer viable
By Martha Muir
US data centre developers are flooding utilities with inflated growth plans, muddying efforts to plan for future power needs with projects that may never materialise.
Developers are approaching multiple utilities with the same project in a quest to find the lowest-priced power, leading to so-called phantom data centres, according to energy industry experts and company executives. The plans are being left in the queue of projects waiting to connect to the grid even after they are no longer viable, leading to bloated demand forecasts.
The artificial intelligence boom is fuelling the US economy, with capital spending on infrastructure offsetting weakness in other sectors. But doubts are mounting over the amount of power data centres will need because of dubious forecasts caused by double counting and the potential for data centres to become more flexible and efficient in their energy needs.
Because utilities can recover the cost of new plants and lines through customer rates, concerns have arisen that clients will end up footing the bill for stranded and underused power plants and transmission lines.
Josh Price, director of energy and utilities at Capstone, a research firm, said: “Even the folks who benefit the most from sky-high projections are realising, ‘what happens if the pendulum swings back the other way and rates get unaffordable?’”
Last month, AEP Ohio, part of utility American Electric Power, cut its list of pending projects by nearly 30 per cent, saying it had culled opportunistic would-be developers who lack “financial strength” to complete a data centre.
And California utility PG&E revised down its data centre pipeline by 400 megawatts — equivalent to about 25 data centres or 250,000 homes.
“There’s an ongoing trend of whittling down,” said Julien Dumoulin-Smith, power, utilities and clean energy analyst at Jefferies. “How many projects are real at this point? That’s what I want to know.”
Electricity prices have risen 6 per cent this year nationally, including 13 per cent in Virginia, 16 per cent in Illinois and 12 per cent in Ohio. The high cost of electricity and data centres featured prominently in recent gubernatorial races in Virginia and New Jersey and for the Georgia Public Service Commission, which regulates power costs.
The industry needs to prevent “double, triple and quadruple counting”, said Brian Savoy, Duke Energy’s chief financial officer.
Grid overseers and politicians are also raising the alarm. PJM, the largest grid operator in the US, has warned of “unclear and uncertain” data centre demand projections, and on Tuesday pushed utilities to throw out projects which hide duplicative requests.
US energy secretary Chris Wright last week urged the Federal Energy Regulatory Commission to “deter speculative projects”.
Utilities have started cracking down on phantom data centres, with those serving eight of the 10 largest data centre hotspots — including Virginia, Illinois and Texas — overhauling their pricing structures and setting stringent rules for prospective projects.
The goal of the policy is to ensure developers cover the cost of energy infrastructure development and prevent individual ratepayers from getting stuck with the bill.
“Nobody builds a 100-story tower in Manhattan without some anchor tenants,” said Tom Falcone, president of the Large Public Power Council, which represents 28 of the largest public utilities in the US. “So no one should be building power plants without knowing there are data centres which actually need it.”
AEP Ohio’s cut happened after it implemented a data centre tariff requiring data centre developers to pay 85 per cent of their stated electricity needs regardless of their actual use.
Kamran Ali, AEP’s senior vice-president for transmission grid planning and engineering, said the utility acted because of the risk of power demand growth being dominated by data centres.
“Back in the day there wasn’t much risk that if one sector was in turmoil we would overbuild the grid,” he said. “Now we’re seeing grid build-out driven by one sector of the economy — so we have to make sure we’re right.”
Dominion, the world’s biggest data centre utility, has proposed a new tariff tier for data centres that will lock them into 14-year contracts in which they pay for at least 85 per cent of their transmission and distribution infrastructure and 60 per cent of generation costs — even if their data centre is never built.
ComEd, which serves Illinois, the US’s fourth biggest data centre market, is trying to increase project deposits. The company charges $1mn for data centre developers seeking 50MW or more, but aims to charge an additional $500,000 for each 100MW afterwards.
Such moves help weed out “queue squatters and zombie projects”, said Sunny Elebua, chief strategy and sustainability officer at Exelon, ComEd’s parent company. The utility, which serves more than 10mn people, recently declared that out of its 65-gigawatt 2040 pipeline, it is confident that only 22 per cent is likely to materialise.
However, the data centre industry voices caution against underestimating future demand, pointing to long connection times for generation projects.
Aaron Tinjum, vice-president of energy for the Data Center Coalition, said: “Our industry has experienced the flip side, under-forecasting, which means we don’t build new infrastructure when there’s an influx of data centres.”
