Business

Data center, power industries face the realities of exponential growth

Where energy expansion meets energy transition.
Data center, power industries face the realities of exponential growth
A Microsoft data center in Wyoming (Credit: Microsoft)

“We haven’t seen growth like this since [the advent of] air conditioning,” is a notable statement from an executive at one of the largest electric utilities in the U.S.

But Christopher Cummiskey said that’s the reality Georgia Power and other utilities face as they work to meet the epic increases in electricity demand, largely driven by AI data centers. And as energy expansion meets energy transition, it’s increasingly acknowledged that data centers and other new large loads will be at least partially served by fossil fuels.

Renewable energy alone won’t serve data centers’ 24/7 power needs, and as older fossil-fired units retire, the grid needs more firm, dispatchable generation. Therefore, utilities are updating their resource plans to build more natural gas generation, said Cummiskey, who is Chief Commercial and Customer Solutions Officer for Georgia Power parent company Southern Company.

“There’s going to be a lot of gas in the next five years. That’s the bottom line,” said Cummiskey during a fireside chat earlier this month at YOTTA, a data center industry conference in Las Vegas.

From 2018 to 2022, approximately 6 to 9 gigawatts (GW) of new natural gas capacity was proposed each year in the U.S., according to S&P Global’s Power Plant Database. That number jumped to around 13 GW in 2023 and has spiked to nearly 30 GW in 2024.

“It’s fair to assume that’s at least partially attributed to this expected demand ramp-up from AI data centers,” said Adam Wilson, Senior Analyst for Energy Research at S&P Global, during a company webinar last week.

Interest in nuclear spikes

While natural gas is set to bridge us through this period of energy expansion and transition, nuclear power is like the shiny object in the distance.

Nuclear has certainly grabbed the attention of the large tech companies, or “hyperscalers” that are driving much of the data center growth. In the last few weeks, Google, Amazon and Microsoft have all struck deals for nuclear energy to power their growing data center operations.

The challenges of high upfront costs and long lead times for nuclear projects are known.

Cummiskey put it plainly: “Building nuclear is hard.”

It’s also expensive. Cummiskey said as it stands today, building two combined cycle plants and running them at 40% capacity is still cheaper than building a nuclear plant. The most recent expansion of nuclear generation, at Georgia Power’s Plant Vogtle, cost more than twice its original budget at nearly $35 billion and took 15 years to build.

Cummiskey, who helped oversee Vogtle’s construction, said utilities will need to leverage the balance sheets of the large tech companies for the nuclear industry to scale up.

“We need the hyperscalers to come and part of this process too, to bring those costs down,” he said.

In the cases of Google and Amazon, the companies are playing a technology enablement role for small nuclear reactor designs.

Earlier this month, Google and Kairos Power signed an agreement aimed at deploying a fleet of nuclear power projects totaling 500 MW by 2035. The deal would allow Kairos Power to “quickly advance down the learning curve” as it works to deploy its fluoride salt-cooled, high temperature reactor.

Days later Amazon signed three new agreements to enable the construction of several small modular reactors (SMRs) in Virginia and Washington state. This includes an investment in SMR developer X-energy, who is building the four reactors as part of the Washington state project.

Oklo is another advanced nuclear company that is making a big data center play. Of the 650 MW in its project pipeline announced during the second quarter of this year, 600 MW were for data centers.

Smaller, more flexible and nimble reactor designs are a good onsite play for data centers, Oklo’s Brian Gitt said during a panel at YOTTA. He said data center customers facing interconnection delays can more easily scale up the needed generation as data center construction is ongoing.

Oklo aims to deploy first commercial plant in 2028. The company will be submitting multiple combined license applications to the U.S. Nuclear Regulatory Commission over the next 12 to 18 months, said Gitt, who is the company’s Head of Business Development.

Gitt said one potential model is data center customers bringing in natural gas generators for power, scaling up as a data center project is built. In phase two, a commercially available reactor could replace the gas generators, with those assets used for backup or supplemental grid power.

Data centers as a grid participant

All the panelists agreed the traditional utility-data center customer relationship must change during this new age of load growth and power constraints. They said data centers need to move beyond the strictly ‘power consumption’ role and be more of a grid asset, whether that be through more active onsite power solutions or participation in demand response programs.

“We have to be responsible for making investments that are adding more electrons onto the grid,” said Brian Janous, Co-Founder of Cloverleaf Infrastructure and former V.P. of Energy at Microsoft.

Since data centers prioritize reliability and haven’t historically faced power constraints, the industry, led by the hyperscalers, has not adopted demand response or peak shaving solutions at scale.

“The data center industry is usually pretty slow to evolve with new ideas and new technologies,” said S&P Global’s Dan Thompson during the company’s recent webinar. “New technology is sometimes wrought with issues that can cause outages.”

Data center demand response programs that do exist are more manual. During ice storms in Texas, for example, multiple data centers self-powered using onsite diesel generators to allow more grid flexibility.

“The hope is that in the future, [data centers] can participate in more of these programs at an automated level,” said Thompson.