March 27, 2025 | Neil Kolwey & Howard Geller
———————————————————-
New data centers, especially those designed to power artificial intelligence (AI), are driving large increases in projected electricity demand in the Southwest states, as well as nationally and globally. There are growing concerns about how utilities will meet these electricity needs. For example, how can utilities ensure that the costs of new generation and transmission infrastructure are not passed on to other customers, whether business or residential? And will utilities add new gas-fired generation to meet the growing power demands, potentially compromising state or utility clean energy goals?
The Southwest Energy Efficiency Project (SWEEP) interviewed most of the major utilities in the Southwest states to explore these questions. Our findings are provided in a new SWEEP report, Data centers: Power needs and clean energy challenges. We found that Southwest utilities are seeing significant requests from Information Technology (IT) companies for large amounts of new power, amounting to thousands of megawatts (MW) of potential new capacity for most of the utilities interviewed.
We identified a few effective practices that help manage these challenges. For example, several Southwest utilities are developing interconnection contracts or tariff designs to ensure that data centers pay for their own generation and transmission capacity needs.
However, there is still a need for further action in several areas. Currently, only one utility in the Southwest — NV Energy — offers a new tariff that allows data center customers to purchase enough renewable energy to power their facilities. This tariff was proposed by Google to enable it to purchase 100% renewable energy for its planned facility in northern Nevada. The proposal was supported by NV Energy and has now been approved by the Nevada Public Utility Commission.
Based on our interviews and other research, SWEEP’s data center report includes several recommendations for utilities, states, and IT companies. First, we recommend that utilities propose new tariffs that would require new large data centers and other new industrial or commercial customers with power demands over 50 MW to purchase all of the facilities’ electricity needs from new renewable sources. Second, we recommend that utilities ensure that the IT companies and other new large customers pay for their full share of their needed generation and transmission infrastructure. In addition, we recommend that utilities implement energy efficiency and demand response programs targeted to new data centers, to help reduce the impacts of these facilities on the grid and on the environment.
These recommendations address two major concerns: (a) threats to state or utility clean energy and climate goals due to increasing electricity demand from large data centers, and (b) rising electricity rates for households and other businesses caused by the costs of new power infrastructure for hyperscale data centers being passed on to other customers.
There are many uncertainties regarding the growing power needs of new data centers and how utilities will meet these demands. We hope this report sheds light on key issues and potential solutions, fostering productive dialogue in the coming months and years among data center owners, utilities, public service commissions, environmental advocates, and other stakeholders.
The post Data centers: Power needs and clean energy challenges first appeared on Southwest Energy Efficiency Project.