The boom in AI data centers will spur electricity demand, with some power companies considering raising prices to expand the grid
In recent years, the demand for electricity for data centers has surged along with the rise of AI in the technology industry. However, as the competition for electricity to operate data centers heats up, power companies are concerned about a shortage of transmission capacity.
'Three New York Cities' Worth of Power: AI Is Stressing the Grid - WSJ
The tech industry is racing to connect to high-voltage wires for things like AI data centers and electric vehicle charging infrastructure, causing massive disruptions to the power supply, with some businesses reporting that utilities are telling them
In addition, Salt Lake City, Utah, has suspended the supply of huge amounts of power to data centers, and in Santa Clara, California, the local power company 'Silicon Valley Power' has refused requests to supply power to data centers. Silicon Valley Power said about the power problem, 'We face transmission and generation problems that will be difficult to solve by the early 2030s.'
According to the Wall Street Journal, searches using generative AI like ChatGPT could consume at least 10 times more energy than Google searches, and the Electric Power Research Institute has noted that 'data centers could account for about 9% of U.S. electricity consumption by 2030.'
This means that power companies need to upgrade their grids to meet the demands of data centers, but there are fears that if data centers are asked to cover the costs, they may move to other areas, and as a result, the costs may be shifted to other electricity consumers.
Therefore, American Electric Power, a power company with the largest transmission line in the Midwest, is proposing 10-year long-term contracts and price increases for data centers and cryptocurrency miners that use its transmission lines, as the current pace of its transmission capacity will be depleted in 2028. Mark Reiter, president and CEO of American Electric Power, said, 'The infrastructure required to continue to supply power to data centers and other facilities is enormous. We proposed this price increase to expand the power grid.'
On the other hand, organizations such as the Ohio Manufacturing Association and companies such as Google have opposed American Electric Power's proposal, arguing that the rate increase could unfairly burden other electricity consumers. In addition, the Data Center Coalition, which includes Google, has called for the contract period to be shortened from 10 years as requested by American Electric Power to eight years.
Because long-term contracts are prone to backlash from companies and organizations, some power companies are considering a contract method called 'take-or-pay contracts,' in which the company pays a fixed amount of electricity regardless of usage. According to Brian Abel, chief financial officer (CFO) of American energy company Xcel Energy, take-or-pay contracts allow the power company to recover the funds it invested in expanding its facilities even if the data center withdraws, and are a fair contract method for all customers.
'Companies that didn't exist two years ago are now demanding 100 megawatts of power,' said Andy Kvengro, managing director at real estate services firm JLLL. 'In these circumstances, the key is to determine what the real demand is.'
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