News

Data centers offer energy peril and promise, with the Midwest increasingly in the crosshairs

Data centers offer energy peril and promise, with the Midwest increasingly in the crosshairs
(A Wisconsin site slated for Foxconn factory is now set to house a Microsoft data center. Credit: Chad Davis / Flickr )

by Kari Lydersen, Energy News Network
June 17, 2024

Southeastern Wisconsin and the Chicago area are emerging as major players in the national data center explosion, most notably with Microsoft’s $3.3 billion planned data complex near Racine, Wisconsin.

Clean energy advocates in the region say data centers pose both a risk and an opportunity, as they can put major stress on the grid, prolong the lives of coal plants and spark new natural gas plants, but also facilitate significant renewable energy investment. Wisconsin utility We Energies, for example, cited demand from data centers in its recent requests to the Public Service Commission for 1,300 MW of new gas generation. Microsoft, meanwhile, has promised to build renewables in the state while also likely creating demand for new or continued fossil fuel energy.

The organization Data Center Map shows more than a hundred data centers in the Chicago area and a handful in Southeastern Wisconsin, often located on the site of former coal plants or industrial operations. A data center is underway on the site of the shuttered State Line coal plant just across the border from Chicago in Indiana. The data center developer T5 recently announced plans for four to six data centers totaling 480 MW of capacity and costing as much as $6 billion in the Illinois town of Grayslake near the Wisconsin border, adding to data centers it already runs in the region.  

Virginia has long been known as “Data Center Alley,” with about 70% of global internet traffic passing through its servers, according to the Wall Street Journal. Dominion Energy said that because of data centers, its electricity demand in Virginia could quadruple and represent 40% of total demand in the state over the next 15 years. Georgia and Tennessee have also seen much data center construction and speculation. Utilities like TVA, Duke and Dominion have announced plans to build more gas plants and keep coal plants open longer in that region, along with building renewables.

Meanwhile, some experts say the Great Lakes region is an increasingly promising spot for data centers because of its cooler climate that reduces energy demand and the availability of water.

“There is no better place” for data centers than the Upper Midwest, said Josh Riedy, who helped design North Dakota’s first tier-three data center, referring to a data center with high reliability — on a scale of one to four tiers — that includes multiple power sources. Riedy also founded Thread, a grid maintenance software company that he’s marketing as especially helpful to serve data center demand.

“The Upper Midwest can export data around the globe,” Riedy said. We’re starting to see the tide turn, it’s just natural.”

Growing load

Projections abound regarding the way data centers — including those processing cryptocurrency and running AI applications — will increase energy demand nationally and end an era of stagnant load growth.

Last year, the Federal Energy Regulatory Commission predicted 4.7% load growth over the next five years, up from 2.6% previously estimated for five-year growth. Data centers “supercharged by the rise of artificial intelligence” will require between 9 and 13 more GW of electricity over the next five years, according to seven case studies analyzed in a December 2023 report by the Clean Grid Initiative, which does not include data center estimates for MISO or CAISO (California) regional transmission organizations. A McKinsey & Company report predicted 35 GW of total demand from data centers by 2030.  

Load growth sparked by data centers comes on top of a shift from fossil fuels to electric heating, cooling and transportation. A 2022 report commissioned by Clean Wisconsin and RENEW Wisconsin found load growth could increase to 166% of 2022 levels with building and vehicle electrification needed to meet the state’s goals of net-zero emissions by 2050.

“Everything from data centers to manufacturing to AI to cryptocurrency,” said Sam Dunaiski, executive director of RENEW Wisconsin. “These all could be triggers for new load, and it all could be coming to Wisconsin, though it’s not unique to Wisconsin. Things like solar and battery manufacturing are coming online that ironically need new load growth too. We think the best way to meet that new load both environmentally and economically is through renewables and transmission to go along with it. This is a great opportunity for a low-cost renewable energy boom in the state.”

Along with the generation demand, Riedy noted, come needs for grid updates and resiliency, which can ultimately help the grid as a whole.

“If you’ve built and designed a data center, you know the nature of them is in many ways fundamentally different than most energized structures,” Riedy said. “Walmart, for example, is going to consume power, but it will have peaks, and constant power is important but not in the way it is to a data center. With crypto mining or AI model training, you see machines running at near peak performance around the clock. That’s producing a type of strain on the grid that has few comparisons.”

Microsoft and more

Microsoft’s energy plans — like many details about the massive data project — are not yet clear, and the company’s ambitious climate goals give advocates hope that the company will finance much new renewable generation either on-site or through power purchase agreements. The company has announced it will build a 250 MW solar array in Wisconsin.

But Microsoft will likely also purchase power from We Energies, fueling advocates’ worries about new natural gas generation and rate increases for regular customers.

The data center will be located on the sprawling site between Milwaukee and Chicago that was previously slated for an enormous LCD screen factory by the company Foxconn. That plan was repeatedly scaled back and then scrapped in the face of economic issues and local opposition.

Citizens Utility Board executive director Tom Content noted that “under state law passed for Foxconn, Microsoft is eligible for discounted market-based electricity rates. They would pay basically for the transmission and distribution, but a portion of their rates would just be set at wholesale market rate,” rather than the retail amount customers usually pay.  

In February, a subsidiary of We Energies filed a plan with the Wisconsin Public Service Commission for an estimated $304 million in grid upgrades related to the Microsoft project. Public auditors filed a letter with the commission noting exemptions that allow less oversight because the project is in a special technology zone.

The Microsoft plan was touted by President Joe Biden as an example of reinvigorated Midwestern investment, but it has faced concerns about its energy and water use. Meanwhile Microsoft has faced setbacks globally in reaching its climate goals, in part because of the massive energy demand of artificial intelligence applications.

Cost concerns

Advocates said utilities may use data centers to justify more investment that earns them a rate of return, even when it is not necessarily needed.

“We are concerned that there could be an overinflation of expected demand in order to capitalize on this trend and build more gas as a last-ditch effort,” said Ciaran Gallagher, energy and air manager for Clean Wisconsin.

“There’s a little bit of a sky-is-falling scenario here,” Dunaiski agreed. “In the early 2000s we saw this with load growth [projections] particularly around the internet. People thought the internet would cause our electricity generation needs to explode. They increased, but there were improvements that came with it — infrastructure getting more efficient, and software.”

That precedent raises questions about the rush to build out gas power to accommodate projected demand.

“Gas isn’t coal, but we shouldn’t be striving for the second worst option, for the environment or for our pocket books,” Dunaiski continued. “If we build these gas plants, customers will be paying for them for the next 20, 30 years.”

Gallaghernoted that the EPA’s new rules for gas plants make new gas investments even more questionable.

“All the gas plants proposed in Wisconsin and across the country in relation to this demand from data centers will have to comply with these standards, and by 2032 either run not very often or reduce greenhouse gas emissions by 90% through carbon capture and sequestration or  low-carbon hydrogen,” Gallagher said. “That prompts the question: Is it worth the price tag to build these gas plants that could become stranded assets or have to spend additional money to comply with these rules?”

Using existing renewables or zero-emissions nuclear energy to power data centers can impact customers too. Content noted that this strategy “accomplishes the decarbonization goals for the tech companies and the reliability needs for the data center. But then you’re taking the fully depreciated, mostly paid-off asset on utilities’ books and having it serve one or two customers, and then the utilities will have to backfill that with a combination of natural gas, solar, storage, wind or future nuclear to serve the rest of the customers.”

“It’s on everybody’s mind how we’re going to tackle this in a way that ensures we don’t say no to economic development, but don’t make energy costs unaffordable,” said Content, noting that data centers have been a major topic of discussion among the National Association of State Utility Consumer Advocates – including at the organization’s conference in Madison in June.  

“Different states are trying different approaches,” Content said. “There’s talk of changing the way utility costs are divided up — currently among residential, industrial and commercial — and dividing it up four ways, with data centers becoming their own entity. Tech companies are pouring a lot of money into the development of these things. They have the wherewithal to contribute mightily to these projects.”

Renewable opportunities

Gallagher emphasized that renewable advocates are not opposed to data centers.

“We think data centers and the economic development that they can bring are not at odds with environmental protection and climate mitigation,” she said. “This can be a low-carbon industry but only if new additional renewables are built to supply all or most of their demands. We think that’s viable if renewables are cost-competitive with gas, and pairing renewables with storage can provide the type of reliability these data centers need.”

Riedy sees renewables and gas as a necessary mix to fuel data centers. While renewables’ intermittency might be seen as a barrier, he said renewables actually could have a unique role to play in energizing data centers – especially in the Midwest.

“In the heat of the day you’re delivering, so having alternate [energy] sources to peak-shave and normalize the cost of energizing that equipment is very important,” Riedy said. “It’s leading to a change in thinking around where to place data centers, that speaks to Wisconsin, the Dakotas. 

“The old way of doing things was generate power in one place, and transmit it for thousands of miles. What data centers are understanding with their insatiable and constant need for power is they are more logically placed by power generation so you can buy that off-peak power, to maintain that load consistently. Since solar and wind overproduce [at certain times], if you can harness that imbalance it’s somewhat of a win-win.”

This article first appeared on Energy News Network and is republished here under a Creative Commons license.