Tech Industry Wants to Lock Up Nuclear Power for AI

Among them, Amazon Web Services is nearing a deal for electricity supplied directly from a nuclear plant on the East Coast with Constellation Energy CEG 2.91%increase; green up pointing triangle, the largest owner of U.S. nuclear-power plants, according to people familiar with the matter. In a separate deal in March, the Amazon.com AMZN 2.04%increase; green up pointing triangle subsidiary purchased a nuclear-powered data center in Pennsylvania for $650 million.

The discussions have the potential to remove stable power generation from the grid while reliability concerns are rising across much of the U.S. and new kinds of electricity users—including AI, manufacturing and transportation—are significantly increasing the demand for electricity in pockets of the country.

Nuclear-powered data centers would match the grid’s highest-reliability workhorse with a wealthy customer that wants 24-7 carbon-free power, likely speeding the addition of data centers needed in the global AI race.

But instead of adding new green energy to meet their soaring power needs, tech companies would be effectively diverting existing electricity resources. That could raise prices for other customers and hold back emission-cutting goals.

Even if tech companies were to offset nuclear-power deals by funding the addition of renewable energy, experts say the likely result is more reliance on natural gas to replace diverted nuclear power. Natural gas-fired plants produce carbon emissions but, unlike renewables, can provide round-the-clock power and are cheaper and more practical to build than new nuclear plants.

The nuclear-tech marriage is fueling tensions over economic development, grid reliability, cost and climate goals in states including Connecticut, Maryland, New Jersey and Pennsylvania.

Amazon’s deal in Pennsylvania set off alarm bells for Patrick Cicero, the state’s consumer advocate. Cicero said he is concerned about cost and reliability if “massive consumers of energy kind of get first dibs.” It is unclear if the state currently has the regulatory authority to intervene in such deals, he said.

“Never before could anyone say to a nuclear-power plant, we’ll take all the energy you can give us,” said Cicero.

“To supplement our wind- and solar-energy projects, which depend on weather conditions to generate energy, we’re also exploring new innovations and technologies, and investing in other sources of clean, carbon-free energy,” an Amazon spokeswoman said.

A new arrangement

The data center that Amazon purchased in Pennsylvania can receive up to 960 megawatts of electricity, enough to power hundreds of thousands of homes. The acquisition accelerated interest in so-called behind-the-meter deals, in which a large customer receives power directly from a plant.

The relatively new arrangements mean data centers can be built years faster because little to no new grid infrastructure is needed. Data centers could also avoid transmission and distribution charges that make up a large share of utility bills.

The new interest in nuclear power is part of a reversal of fortune for companies that own power plants in competitive power markets. That business has been difficult for two decades following overbuilding in the 1990s. Nuclear plants struggled to compete with wind, solar and natural gas, prompting a wave of closures.

But tech companies willing to pay a premium for nearly uninterrupted, carbon-free power could make good on climate-change pledges while powering AI.

Shares of Vistra VST 2.44%increase; green up pointing triangle, the largest competitive power generator in the U.S., have more than doubled this year. The company has been in talks for behind-the-meter deals at both nuclear and gas plants.

“In this case, the customer has come to us and come to many in the industry and said ‘I need as much power as you can make available,’” said Vistra Chief Executive Jim Burke.

Constellation Energy, which owns 14 U.S. nuclear-power plants and produces more than a fifth of the nation’s nuclear power, has seen its shares rise more than 70% this year.

Constellation’s president and CEO, Joseph Dominguez, said there are still many places, including a swath from Pennsylvania to Illinois, with an oversupply of power. That leaves room for data centers, he said.

Contracts with data centers willing to pay a premium would cover the cost of re-licensing, he said, extending plant life another 20 years and supporting investments that could boost nuclear-power output.

“If we don’t have those things, we’re going to lose the nukes again,” Dominguez said. “We’re going to go back to where we were.”

Lots of talks, and controversy

It is too early to know just how much power data centers will need. Estimates range from around 4% of power consumed last year in the U.S. to something between 4.6% and 9% by 2030, according to the Electric Power Research Institute.

In Connecticut, state Sen. Norm Needleman never envisioned taking existing power off the grid when he supported economic incentives for data centers a few years ago. Then a developer proposed connecting a data center to the Millstone nuclear plant.

“If we lose a carbon-free resource, what are we going to replace it with?” asked Needleman, whose bill to require a study of such projects didn’t pass this year.

Daniel O’Keefe, commissioner for Connecticut’s Department of Economic and Community Development, said the proposal could work if it is done in a thoughtful way. Neighboring states are adding data centers, with needed grid improvements shared by all New England customers, so Connecticut ought to receive some economic benefits, he said.

“Our constituents are paying for these data centers regardless of whether they’re inside Connecticut,” O’Keefe said.

In New Jersey, Public Service Enterprise Group PEG 0.04%increase; green up pointing triangle CEO Ralph LaRossa has said the company has been in talks with data centers, including for direct power sales, which could support New Jersey’s economic-development efforts to create an AI hub.

About 40% of the state’s power comes from nuclear power, including plants owned by PSEG.

New Jersey customers have spent about $300 million a year during the past six years to help keep its plants operating, plus hundreds of millions before that, said Brian Lipman, director for the New Jersey Division of Rate Counsel.

“What happened to that investment?” asked Lipman.

New Jersey is also targeting 100% clean-energy generation by 2035, which Lipman said would be impossible without nuclear power. PSEG declined to comment.

Energy needs

Many of the negotiations are happening within the PJM Interconnection, the regional transmission organization and electricity market serving Washington, D.C., and 13 states from Virginia to Illinois. It said it would work with both plant and transmission owners, and conduct analyses to avoid reliability issues and other problems.

Last week, utilities American Electric Power AEP -0.45%decrease; red down pointing triangle and Exelon EXC -0.39%decrease; red down pointing triangle requested a hearing at the Federal Energy Regulatory Commission about Amazon’s deal in Pennsylvania, arguing that as much as $140 million in costs could shift to other customers and that the data center “should not be allowed to operate as a free rider,” benefiting from a transmission system others pay for.

Talen Energy TLNE 2.50%increase; green up pointing triangle, which built the data center and operates the nuclear plant, called the request a “misguided attempt to stifle this innovation.”

It is unclear whether and how much data centers located at nuclear plants would need to depend on grid power. Nuclear plants are far more reliable than other kinds of power generation but have outages, too.

Before Amazon purchased the Pennsylvania data center, a Talen nuclear reactor had an outage last fall and the data-center campus had to pull power from the grid, according to people familiar with the incident. The need for grid power was unexpected, and additional system protections have been put in place since then to avoid a repeat, the people said.

Talen and grid operator PJM declined to comment on the incident.

Source: WSJ – Jennifer Hiller