Energy-intensive data centers are the backbone for artificial intelligence. They spike demand from our power companies and utilities at a rate we haven’t seen in generations.
We’ve heard about plans for these centers for years and wondered how many would come to fruition. Now there is hard evidence this all is getting very real, with consequences for everyone who pays an electric bill.
Commonwealth Edison announced last week that it had struck agreements with eight data center developers. ComEd will require nonrefundable payments totaling more than $2 billion to cover its costs of connecting those projects to the local power grid. While those arrangements will protect ComEd ratepayers from having to pay more if these projects crater or fall short of projections, to our mind the more important takeaway from the news was to provide policymakers and the public with the first solid indication that the predicted data center demand surge is coming. Quickly.
There are two more groupings of data center applications ComEd must process. The next one contains 15 projects that, combined, would consume 10,000 megawatts. ComEd will announce this spring how many of those applicants have agreed to proffer the $200 million to $300 million in nonrefundable commitments in order to move forward.
So, it’s time to consider this as a matter of urgency: What will be the impact on reliability and affordability of electricity in Illinois?
At peak times, power generators located in northern Illinois currently produce about 5,000 megawatts more than is consumed in this region. That excess juice is exported to other states that don’t have the same abundance of electricity. The 6,000 megawatts worth of new demand that appears to be coming online over the coming decade (the first of those northern Illinois data centers is expected to begin operation as early as 2028) will more than soak up that 5,000 megawatts in excess capacity.
On its face, the situation appears worrying and carries risk for more price hikes for consumers and businesses. After all, electricity is a commodity that’s subject to the laws of supply and demand just like other similar products. When demand outstrips supply, prices rise.
We’ve already seen such effects in our electric bills. Over the summer, ComEd rates rose substantially, in large part due to a dramatic increase in poorly-understood costs all ratepayers shoulder to compensate power producers for the promise to deliver during peak-demand periods such as heatwaves.
A primary reason for that sharp spike in those so-called capacity payments: Looming data-center consumption.
So now we’re rapidly nearing a crossroads. With investment in AI soaring, the technology will be more front and center in all our lives, whether personal or professional. But AI doesn’t happen without data centers, and data centers don’t operate without lots and lots of electricity.
So, as Illinois gets set to confront this brave new world, we suggest a few parameters to frame the debate.
First, ComEd ratepayers — businesses and households alike — shouldn’t be paying more than they would otherwise for electricity in order to accommodate these voracious commercial enterprises. There are multiple means available to to accomplish that policy outcome, but holding existing ratepayers as harmless as possible should be the north star for state lawmakers and other policymakers as they think about how to respond.
To that end, we expect to see bills introduced that, for example, would require data center operators to strike deals with new sources of power rather than tapping into existing facilities that are keeping the lights on already.
We’re already seeing examples of this kind of arrangement. In October, Google announced an agreement with a firm to construct a new natural gas-fired plant in downstate Decatur alongside a plant already run by Archer Daniels Midland. The power plant will generate 400 megawatts and incorporate technology to capture and bury carbon emissions from burning the gas.
As with all aspects of energy production and distribution, though, the devil is in the details when lawmakers get involved. Overly prescriptive solutions to legitimate problems often lead to unintended consequences that require yet more responses by policymakers. Frequently, ratepayers end up paying more in the wash.
On Thursday, facing the possibility of future electricity shortages, Gov. JB Pritzker signed major amendments to his 2021 Climate & Equitable Jobs Act that give state regulators more flexibility in phasing out fossil-fuel power plants. Those changes wouldn’t have been necessary had the original green-energy law provided for that common-sense flexibility in the first place.
That law also lifts Illinois’ nearly four-decade ban on new base-load nuclear power plants. Building a new nuke in Illinois would have been unthinkable just a few years ago — for economic reasons as well as legal ones. Times have changed quickly. Don’t be surprised to see plans to build a new nuke in Illinois within the next few years.
Additionally, Illinois already is home to the largest fleet of nukes in the country, and Baltimore-based Constellation, which owns the plants, has the capability to boost capacity at most if not all of those power stations. That could be a significant source of new supply.
Our guideline for major new power generation sources is that ratepayers shouldn’t be taking the risk on these massive investments. A new nuke, for example, would be the ideal facility for a deep-pocketed tech firm (or group of them) to finance for their own use. ComEd ratepayers paid for the existing fleet of nukes, which were built in the 1970s and 1980s; the cost overruns were legendary, as were operational difficulties that persisted for decades.
We’ll have more to say on data centers as the scope of the issue continues to become clearer. For now, lawmakers and regulators should do no harm. And, if it wants to avoid a nasty backlash, the date center industry should cover most of the cost of its power needs rather than look to the public.
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