How the US can win the AI race without driving up energy costs

by Admin
An aerial view of transmission lines running alongside data centers

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Welcome to Energy Source, coming to you from New York.

The nuclear industry is enjoying a big funding boost linked to soaring demand for energy to power artificial intelligence data centres, according to a story by my Energy Source colleague Jamie Smyth.

Developers of small modular nuclear reactors have raised at least $1.5bn in private funding over the past year and secured billions of additional dollars of support from governments. But they must overcome technical, regulatory and financial challenges before they can be deployed — most likely from 2030 onwards.

Although nuclear is popular with Big Tech, there are other options to satisfy a surge in energy demand.

In today’s Energy Source we look at a Rocky Mountain Institute report, shared exclusively with the Financial Times, that revealed how data centres can be built without triggering rapid rises in electricity costs. — Alexandra

How to lower the electricity costs of the AI boom

The US race to lead in artificial intelligence is raising alarm about its financial burden for ratepayers, as the industry’s vast electricity consumption pushes the country closer to a power shortfall.

A new report shared exclusively with Energy Source, however, found AI data centres can be built without triggering a rapid rise in electricity prices.

The Rocky Mountain Institute (RMI), a sustainability think-tank, found that pairing a data centre with a newly built renewable energy source located near an existing gas plant can fast-track the delivery of new electricity supply and insulate families and businesses from higher prices.

Building renewable projects next to existing gas plants helps circumvent the long wait times for grid connection that have grown in recent years, with projects waiting on average five years to get connected to the grid, according to Lawrence Berkeley National Laboratory.

Dubbed “power couples”, this pairing could help meet more than 30 gigawatts of new data centre demand for less than $100 per megawatt-hour, RMI calculates, with the largest potential in Texas, the mid-Atlantic and the US south-east.

Average US wholesale electricity prices in November were highest in New England at $64.21/MWh and lowest in Texas at $12.50/MWh, according to the US Energy Information Administration.

The data centre would pay for special protections to keep its power separate, avoiding imposing additional burdens on the grid and protecting other consumers from higher costs.

“Here is a way to get more of those renewable projects that are ready to go online faster in a way that directly powers a critical industry . . . that does so without shifting costs to other customers,” said Mark Dyson, managing director of the carbon-free electricity programme at RMI.

The report from RMI arrives as the proliferation of data centres for AI helps drive a historic increase in US electricity demand, threatening to raise energy prices and slow the country’s progress on decarbonising its electricity system.

US power demand sits at record highs and is expected to grow another 16 per cent by 2029, according to Grid Strategies. A report from consultancy ICF last year found rising power demand will trigger a nearly 20 per cent increase in wholesale power prices for electricity from 2025 to 2028.

Several state legislatures — including New York, Virginia and Oregon — have proposed or introduced bills this year to regulate data centre energy use in order to protect consumers from higher prices.

Last year, the Federal Energy Regulatory Commission rejected a proposal that would have increased a Pennsylvania nuclear power plant’s capacity to serve an on-site data centre because it could worsen grid reliability and raise costs for consumers.

The average data centre is small and only demands 5-10 MW, according to the International Energy Agency. But AI has created the need for large data centres that are much more energy intensive, which the IEA estimates could have a power demand of about 100MW or more.

Giordano Albertazzi, chief executive of Vertiv, which supplies power equipment to data centre operators, said: “In the past, a data centre would almost solely rely on grid . . . We see that this hunger for power is translating [into] more and more data centre operators . . . finding more ingenuity.”

Patricia Poppe, chief executive of Pacific Gas and Electric in California, where utility rates are among the highest in the country, told Energy Source that the revenue from data centres have helped lower rates for residents.

“We have the privilege of serving the largest tech companies . . . and their demand is increasing, and it’s increasing in a way that, as we power it and serve it, it ends up lowering the rates for the rest of our customers,” said Poppe, who expects investments in transmission and later renewable energy combined with storage assets will meet the 5.5GW of new demand over the next decade.

To meet the surging electricity demand, big technology companies such as Amazon and Microsoft have all announced investments in nuclear energy.

But the nuclear energy sector faces technical, permitting and financial risks that threaten to delay projects. RMI said the power couple model could deliver supply in one to two years, benefiting companies looking to build up more quickly.

Still, obstacles exist for RMI’s solution. Dyson said the power couple model is possible in Texas, where there are no regulations that bar the siting of new power generation with existing gas plants. But he added it is not possible in “much of the rest of the country” because of how the electricity industry is regulated.

“This is an amazing economic opportunity for the United States to support a critical industry and do so in a way that is cost effective and clean,” Dyson said, adding there is an “opportunity” to consider shifts to power market regulations at the federal and state level to bring the power couple model to the country. (Alexandra White and Amanda Chu)

Job moves

  • Jigar Shah, former director of the US Department of Energy’s Loan Programs Office under the Joe Biden administration, is joining Powerhouse Ventures as a part-time venture partner.

  • CTC Global, a manufacturer of grid products, has appointed John Emery as vice-president of North America sales and business development. Emery joins from Trachte.

  • Chad Richards has left Kirkland & Ellis to join Mayer Brown’s global energy group as a partner.

  • David Hill, who served as general counsel at the US Department of Energy under the George W Bush administration, will lead the Bipartisan Policy Center’s energy programme as executive vice-president of energy.

  • Chris Miller has joined Lazard’s power, energy and infrastructure advisory business as managing director. He joins from Citigroup, where he was managing director and vice-chair of energy investment banking.

  • Phoenix Technology Services, a division of PHX Energy Services, has appointed Michael Buker as chief executive to succeed John Hooks, who will become executive board chair on March 1. 

  • Oil and gas exploration company Helios Energy has appointed Edward May as chief financial officer.

Power Points

  • The senior US Republicans who are planning to dismantle the Inflation Reduction Act enjoyed an investment boom of more than $130bn in the areas they represent thanks to the bill signed into law by former president Joe Biden.

  • The world’s largest sustainable fuel producer, Neste, plans to cut costs after its share price collapsed more than 60 per cent.

  • A group of 48 institutional investors called on BP to give shareholders a vote on any plan to backtrack on its climate goals, in a potential clash with US activist Elliot.


Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.

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