Many of the largest data center owners (e.g. Google, Microsoft, and Amazon) are exploring the co-location of data center load adjacent to new or existing power plants. Energy regulators now struggle to come up with rules that fairly address the co-location of energy-intensive data centers.
The regulation of co-located load is hotly debated. Opponents argue that dedicating existing generation to data centers will decrease the grid’s ability to reliably serve other demand on the grid. Proponents argue that these new data centers need the capacity whether it is located behind or in front of the meter. While the impact of co-location on resource adequacy is not an issue if the new load interconnects with new generation (for example, Microsoft’s plan to repower Three Mile Unit 1 and use the new generation unit to serve its new data center), even when co-located load uses new generation, there are other issues to be addressed. These include how these co-located loads (whether behind or in front of the meter) pay for access to grid services and/or rely on the grid to back up behind the meter generators.
The regulatory debate is playing out in various cases that are now in front of the Federal Energy Regulatory Commission (FERC). Three of the most important that we are following are: (i) FERC’s technical conference on resource adequacy (AD24-11), (ii) Talen’s interconnection request for an Amazon data center to be located adjacent to Talen’s Susquehanna nuclear plant (ER24-2172), and (iii) Exelon’s filing on behalf of six different utilities for new tariffs that address allocating costs to co-located loads (ER24-2888).
The stakes are substantial, with the leading data center owners (e.g., Microsoft, Amazon, Google), generation owners (NRG, Vistra, Calpine, Constellation), and integrated utilities (Exelon, AEP, Southern, Duke), supporting robust litigation and advocacy efforts. Although the outcome of these complex issues is uncertain, it is difficult to bet against the data center owners successfully navigating a regulatory path that facilitates the co-location of data center loads at new or existing power plants given that the combined market capitalization of Amazon, Google, and Microsoft exceeds $7 trillion.