The Federal Energy Regulatory Commission (FERC) recently convened a technical conference to explore the complex and potentially disruptive implications of the increasing trend of building large data centers adjacent to U.S. power plants. These facilities, vital for managing and processing the data-intensive workloads required by advanced technologies like artificial intelligence (AI), have substantial energy needs. This growing demand has led to an increased number of data centers directly connecting to power plants in a model known as “co-location.” Co-location provides a faster, more direct power source for data centers than joining the broader grid, but it also raises potential concerns around costs, grid reliability, and equitable energy distribution.
In addressing the issue, FERC Chairman Willie Phillips stressed the importance of these data centers, particularly those involved in AI, as they are seen as essential to both national security and economic growth. “The federal government, including this agency, should be doing the very best it can to nurture and foster their development,” he said, underscoring FERC’s recognition of the role that AI-focused data centers play in the U.S. economy. A recent example of co-location is Amazon’s acquisition of a data center powered by a Pennsylvania-based nuclear plant operated by Talen Energy. Amazon’s move reflects a larger industry trend toward integrating data centers with nuclear energy facilities, which offer the continuous, reliable power that data-heavy operations demand. The attractiveness of nuclear power for data centers has spurred investor interest, driving up stock prices for nuclear operators like Constellation and Vistra.
However, this rapid shift towards co-located data centers raises important questions about cost-sharing and impacts on everyday energy consumers. Data centers consume massive amounts of electricity, often placing significant demand on infrastructure that was traditionally designed for broader public use. Since co-location allows data centers to tap directly into power plants, they may rely on grid infrastructure that is funded by public resources, potentially raising electricity bills for regular consumers. This concern extends to the possible strain on grid stability; if co-located centers are prioritized for power, it could reduce the availability of power meant for general public use, particularly during peak times or emergencies.
Another issue discussed at the FERC conference was the potential strain on grid reliability. Commissioner Mark Christie raised a key concern: if a neighboring power plant that supplies a co-located data center goes offline, will the data center have the right to draw power from the grid as a backup? In such cases, a high-demand facility suddenly using the grid could impose heavy loads, impacting service stability and reliability for regular consumers. These facilities, often using hundreds of megawatts of power, represent a significant drain on the grid. With more data centers opting for co-location, such occurrences could disrupt service for consumers, especially in regions where power capacity is already stretched.
The conference further emphasized that co-location could exacerbate existing supply-demand imbalances. Joseph Bowring, the independent market monitor for PJM Interconnection, warned that a growing number of data centers co-located with nuclear plants could worsen the power supply issues faced by the region. He argued that instead of merely redirecting existing energy sources, data center developers should focus on increasing power production to ensure a sustainable solution that supports both public and private needs. Bowring’s comments underscore the potential for a long-term energy supply issue if demand continues to outpace growth in power generation.
Given these challenges, the FERC conference signaled the potential for new regulatory guidelines governing co-located data centers. These regulations could address questions around who is responsible for funding transmission and distribution upgrades and establish formal protocols for agreements between data centers and power plants. FERC is also currently reviewing a regulatory dispute involving Talen Energy’s co-location deal with Amazon. This particular arrangement has drawn opposition from other utilities, including Exelon and American Electric Power. The outcome of this case could set a precedent for future co-location agreements, shaping how energy resources are allocated and potentially creating a framework for cost distribution in future data center operations.
Google, one of the major companies interested in co-located data centers, provided insights during the conference. Brian George, Google’s head of global energy market development, explained that the company’s primary interest in co-location is to secure reliable electricity for its expanding data operations, rather than to avoid shared infrastructure costs. “We will pay for our fair share of those costs,” George stated, signaling Google’s commitment to covering its portion of the costs while meeting its growing energy demands.
The broader implications of co-location for the U.S. energy sector are significant. As the demand for data processing capacity continues to surge, the energy needs of data centers are likely to rise proportionately. This scenario presents an urgent need for energy solutions that can not only support data centers but also ensure consistent, affordable access for public consumers. At the same time, FERC’s exploration of regulatory solutions marks an important step in understanding the full impact of co-location on the national grid. New regulations could standardize how data centers integrate with power plants, helping balance the needs of the public with those of private enterprise.
The FERC conference ultimately highlighted the need for a careful approach to the future of co-located data centers. While they provide an efficient means for tech companies to secure the power necessary for advanced operations, the strain on the grid, increased costs for consumers, and potential supply-demand imbalance must all be carefully considered. As FERC continues its investigations and deliberations, the agency’s upcoming decisions will likely shape the framework of energy distribution, ensuring that the expanding tech sector can coexist sustainably with public energy needs.
