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ENB Pub Note: AI and data centers will have a profound impact on energy demand. Look for them to be built in Republican states with energy-friendly policies and near natural gas pipelines. And as of yesterday, near coal plants. That is a game changer, but it still does not change the fact that we will see more microgrids and dedicated power plants. If you can afford it, do it. This will be great for Bitcoin miners and investors.
- U.S. utilities are raising capital investments in view of meeting data center power demand.
- Current estimates of data center electricity requirements may not be accurate in a few years.
- The huge difference between requested capacity and capacity in advanced stages makes forecasts of power demand growth difficult.
There is no doubt that AI advancements and data centers will be sucking up more electricity in the coming years, and power demand in the United States will grow after a decade of stagnation. What’s in doubt is how much additional power-generating capacity the AI boom will need and how electric utilities will navigate through the complex supply-demand balances in various regions.
U.S. power utilities have announced billions of U.S. dollars in capital plans for the next few years and are getting a lot of requests from Big Tech for new power capacity in certain areas.
But these requests do not paint an accurate—or full—picture of the power needs of the technology giants because companies tend to inquire about data center power supply with at least three utilities in different areas. Of these three requests for new power capacity, only one will become a project for which agreements will be signed.
In addition, current estimates of data center electricity requirements may not be accurate in a few years as economic hurdles could slow construction, and next-generation AI could need fewer chips and less power for cooling.
Utilities Boost Spending Plans
U.S. utilities are raising capital investments in view of meeting data center power demand, and are noting that requests for interconnection and transmission have spiked over the past year.
For example, Dallas-based Oncor Electric Delivery Company announced in February a new five-year capital plan of approximately $36.1 billion for the 2025 to 2029 period, up by about $12 billion from the 2024-2028 plan. A total of $2 billion of the increase in spending comes from the interconnection of generation and large commercial and industrial (LC&I) customers with executed agreements.
Oncor and its subsidiaries operate the largest transmission and distribution system in Texas, delivering electricity to more than 4 million homes and businesses.
Oncor’s LC&I interconnection queue of customer requests, including requests without signed agreements, exceeded 137 gigawatts (GW) as of December 31, 2024. This was a 250% surge over the amount of potential load in the queue at the end of 2023.
However, the power utility noted that its capital plan only includes expected spend for major transmission projects for which all regulatory approvals have been obtained.
“Additionally, with regard to LC&I customers seeking interconnection at the transmission level, like data centers, the capital plan only includes those projects for which customers have executed an agreement with Oncor,” the company said.
Apart from the $36-billion capital plan, Oncor has identified about $12 billion in potential additional incremental capital opportunities over the 2025-2029 period, including potential updates to the System Resiliency Plan and additional transmission interconnection projects from LC&I customers who have submitted transmission requests but not yet signed agreements.
Other U.S. utilities also noted the surge in data center requests. Pennsylvania-based PPL said in its Q4 earnings presentation that Pennsylvania and Kentucky continue to attract data center interest.
In Pennsylvania, PPL has as many as 48 GW of active data center requests for the period 2026 – 2034. But those in advanced stages – projects that have signed agreements with developers – are 9 GW. This new capacity in advanced stages is more than double PPL’s current regulated generation capacity of 7.5 GW.
Uncertainties Abound
The huge difference between requested capacity and capacity in advanced stages makes forecasts of power demand growth difficult. Analysts and utilities cannot reliably say how much new capacity is needed, considering that one data center project pitches electricity supply requests with different utilities in different states.
As a result of this, “counting data center project proposals to forecast load growth can result in the overestimation of data centers likely to be built in a specific service territory,” a report by Koomey Analytics and the Bipartisan Policy Center said in February.
“Only national or regional level tracking of these projects can give an accurate picture, but such tracking currently does not exist, at least in a publicly available form,” the authors, including Koomey Analytics president Jonathan Koomey, wrote.
Then there is the economic uncertainty, which has just spiked with recession odds raised to above 50% following the Trump Administration’s tariffs announced last week. Inflation, interest rates, and rattled and distorted supply chains could delay some data center construction projects, analysts say.
Costs to build a data center have surged from last year, James Richmond, CEO of energy management system provider e2Companies, told Reuters.
Even before the latest tariff announcement of across-the-board tariffs on nearly all countries, CBRE, a commercial real estate services provider, said that the tariffs in March on Mexico and Canada can have “a material impact on the cost of commercial real estate construction.” The tariffs would raise construction costs for commercial projects by between 3% and 5%, “which could persuade developers to put some projects on hold.”
The U.S. trade policy could defer some spending on data center construction as Big Tech would be looking to procure semiconductors while they are still tariff-free, according to analysts.
“Capital expenditure by tech giants will get reshuffled: Expect major players in AI infrastructure and consumer tech to reallocate short-term spending away from expansion and toward procurement hedging or sourcing shifts,” Abhishek Singh, partner at research firm Everest Group, told Reuters last week.
With all these uncertainties, analysts and U.S. utilities continue to struggle with reliable estimates of how much and how fast new power capacity could be available to meet rising demand from AI.
By Tsvetana Paraskova for Oilprice.com
The post Data Center Boom Sparks Utility Spending—But How Real Is the Demand? appeared first on Energy News Beat.
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