Data centers are ushering in a new era of demand that requires a new way of working. Historically, commercial and industrial (C&I) customers could come in and request service, on order of as high as 20 MW, and utilities would service the request. We all know the drill.
Now, here come a host of hyperscale data centers, asking for hundreds of megawatts for projects that may never come to fruition. Cumulative demand from data centers is outpacing reserve capacity by a long shot in many jurisdictions. Load growth has historically been measured in a fraction of a percent. The hypergrowth of hyperscale data centers is changing that in a big way.
Utilities have a duty to serve. Being a regulated entity means you don’t get to decide who you’ll serve. But this era of hyperscale demand will require a new way of working. We see a future where data centers and utilities function best in a co-serve partnership.
Short-term Solutions to Supply Challenges
Early on, to address power supply challenges, a lot of data center developers started searching for sites in unusual places that had excess power. Over the last few years, we’ve seen data centers pop up in remote locales like Kuna, Idaho; Culpepper County, Virginia; and Wasco County, Oregon.
While not known for fiber optic connections nor demand for low-latency data, those communities began reaping the benefits of data center developments which generate significant tax revenue, jobs, and other social investments without placing much burden on city services like roads and schools.
Data centers were welcomed. Problem solved! Temporarily.
Creative siting was a solid strategy for a season of the industry’s growth. But low-hanging power is picked over. Today, power is at a premium, pretty much the country over. It’s time to dig in on more long-term strategies for resolving power supply and demand imbalance, while creating benefits for all ratepayers.
A Different Approach
Dallas-based Compass Datacenters sites and develops single-tenant hyperscale data centers. We’re known for doing things a bit differently,
Take our approach to partnership. The companies we work most closely with have been with us since our founding. We don’t have a procurement group. We do have an innovation team. Our partners are a critical part of that team.
We work together to solve problems and move the industry forward. And we want to extend this innovative approach to collaborative problem solving to utility partners.
Compass believes there is a co-serve future. A model wherein those of us asking for a lot give a lot too. We want to work with utilities. I was hired earlier this year to help make that vision a reality, after decades in the utility industry most recently developing the clean energy strategy for Duke Energy. Speaking the same language is the first step to collaborating more effectively.
At the EPRI conference a few weeks ago, Compass brought forward our vision for collaboration that seemed to be well received by utilities in attendance.
We see a future where we’re partners in planning, risk sharing and capital expenditure. There are four specific areas that could benefit from a co-serve approach.
- Load ramping. Heavy users need to provide utilities with purposeful, planned, and measured load ramping road maps. Some C&I customers “demand dump.” We don’t think that’s productive or realistic for a utility to plan against. Data centers can and should chart out a reasonable multi-year load ramp to enable our utility partners to plan.
- Sharing risk. Shareholders and other ratepayers shouldn’t be left holding the bag for million- or billion-dollar generation and transmission investments. Once the utility has booked the capacity, the customer should have to pay some portion regardless of if a project gets pulled.
For this to become reality, there will need to be clearer pathways to data center permitting. If the data center can secure the site and plan for development with assurance, utilities can likewise invest in load growth with confidence.
- Contribution in Aid of Construction. Compass looks for ways to help, not hurt. For example, at a project in north Texas, we helped secure the right of way for transmission lines and covered the cost to build a substation on the 200-acre hyperscale campus. As an unregulated, private company, we have greater capital deployment flexibility and can make infrastructure investment decisions relatively quickly.
- Creative tariffs. Right now, the cost of infrastructure expansion is spread across ratepayers. Creative tariffs, which ensure C&I customers pay a larger share, can help alleviate any burden to household ratepayers so they’re able to reap the benefits of grid improvements made by data centers, without bearing the cost of capacity expansion. Multiple utilities have announced or are exploring creative tariffs right now. While it comes at a cost to the C&I sector, we see it as a fair and reasonable next step if the rates are equitably applied.
Ultimately, we want to get to a place where permitting makes it possible for data centers to run backup power – which often goes virtually untapped – to help during peak demand and offer more creative solutions for providing power to the grid. There is work to do from a permitting perspective to make it easier for our industries to work together but positive momentum is building.
Let’s figure this out and lower the hurdles so we can overcome today’s challenge and seize the opportunity at hand. Both industries – data centers and utilities – are no strangers to challenge. We will come through this one and build a better system that supports our growing digital economy for the good of businesses and consumers everywhere.
