A 20 to 30 MW manufacturing facility used to count as a large customer. Now, some proposed data centers are requesting 1,000 MW or more, and one development planned in Ohio could eventually reach 10,000 MW. Utilities are being asked to make major infrastructure decisions without knowing which projects will move forward, when they will come online, or how much power they will actually use.
Utilities, generators, electricity suppliers, equipment manufacturers, and local taxing authorities could all benefit from data center growth. But other energy users may find themselves competing for electricity, natural gas, water, generators, and other limited resources. Existing ratepayers could also see their costs rise.
Federal regulators are asking regional grid operators to explain how large loads will connect and how they will keep those costs from falling on other customers. Congress and several states are considering similar protections that would require large data center owners to pay for grid upgrades. The concern is drawing attention from both sides of the political aisle.
Some developers are building dedicated power plants or installing generators to serve data centers without relying entirely on the grid. That may help them avoid certain regulations and long interconnection timelines. It does not eliminate environmental requirements, zoning and permitting issues, or opposition from local communities.
The effects will look different from one market to another. Texas has benefited from strong growth in solar and battery storage, but its longer-term outlook depends on how quickly demand grows and whether data centers rely on the grid or generate their own power. PJM is already dealing with tighter conditions, rising capacity costs, and ongoing price volatility. What energy buyers should do next depends on where they operate, how far ahead they purchase, and how much risk they are willing to take.
These takeaways are just some of the highlights. The full webinar goes deeper into the scale and pace of data center demand, who stands to benefit, and who may bear the costs, policy developments at the federal, state, and local levels, behind-the-meter generation, and what energy buyers can do to prepare. Watch the full recording below for the complete discussion.
A: AI tools can help track dockets from public utility commissions, state legislatures, regulators, and governors’ offices. Utility-focused websites and major outlets like Bloomberg also cover the issue closely.
The harder part is figuring out which developments will actually affect prices. Much of the conversation centers on electricity costs and new power plants, but natural gas supply, transmission lines, and pipelines matter too. National trends provide context, but the impact will vary by local market. That is where an advisor who knows the market can help.
A: Change will likely take time. PJM includes many states and stakeholders, and any new methodology would need FERC approval.
Other markets have shifted toward shorter-term capacity models because forecasting demand three or four years out is difficult. New England and New York use prompt-month models, while MISO uses a prompt-year model.
PJM will probably move toward a shorter-term structure, possibly with seasonal or quarterly markets. It may also rely less on a centralized capacity requirement and more on bilateral arrangements or ancillary services. PJM is considering several approaches, including models used in California, New York, and Texas. Over time, capacity could become less important as backstops, reliability-must-run agreements, and other measures are used to manage volatility.
A: We haven’t looked closely at the economic feasibility of the idea, as we generally don’t evaluate developments more than ten years out.
The same uncertainty applies to technologies such as small nuclear reactors. Large nuclear plants could have a major impact and may be a good fit for data centers, but questions remain about how quickly they could be developed and whether they could be built at scale. For now, both nuclear technology and data centers in orbit remain a “wait and see.”
A: Watch the broader trends and check in from time to time. There is a constant stream of news, and following every update can create more noise than clarity. Periodically reviewing the major stories can give you a better sense of where things are heading.
Public pushback has grown, and politicians are paying attention, especially during an election cycle. Electricity and capital markets also offer clues. Stock movements among companies such as Amazon, Constellation, Vistra, and major utilities can show whether the market sees a development as bullish or bearish.
The midterm elections will be another important signal. Data centers have substantial capital behind them, but voters, including farmers and ratepayers, will also shape what happens next.
A: Rising. The outlook for basis prices in PJM is bullish because pipeline capacity is constrained while natural gas demand is growing.
For much of the past decade, the industry focused on moving gas out of PJM toward the Gulf Coast for export to Asia or Europe. The East Coast has historically had limited natural gas supply and high basis prices, but there has been little appetite to add pipeline capacity.
A few projects that have been planned for years are moving forward. One would carry gas from Pennsylvania north into New York and east toward New England. Another would expand Transco capacity into New York City. Even so, production growth in Appalachia has been slow because pipeline capacity remains limited. If demand rises by two, three, four, or eight Bcf per day, the negative basis conditions seen in parts of PJM do not necessarily have to continue.