In 2020, Virginia’s legislature approved the Virginia Clean Economy Act, mandating that Dominion Energy, the state’s primary utility, must source all its electricity from renewable resources by the year 2045. However, the utility has leveraged a loophole involving data centers to sidestep these requirements.
Virginia has become a leader in data center operations, hosting the largest collection globally, with over 150 hyperscale centers already in place. As Dominion’s recent integrated resource plan demonstrates, the anticipated energy demand from these data centers is a major reason for postponing the closure of older power facilities, including the Clover Power Station, a coal-powered plant situated in a low-income area of Halifax County.
Dominion has also suggested constructing new gas-powered facilities, including a 1-GW peaker plant in Chesterfield—a community already enduring significant environmental burdens from existing natural gas and coal facilities. Similar circumstances have emerged in various states, including Georgia and North Carolina, where utilities plan to erect up to 20,000 MW of new gas plants by 2040, largely driven by the demands of data centers.
Nationwide, the increase in data centers is stalling the retirement of fossil fuel plants; currently, 17 promised closures have been delayed. This trend disproportionately affects Black and brown communities, who often face higher energy costs and pollution.
Concerns are mounting that the expected demand from data centers may be inflated. Many prospective clients submit speculative requests for connections across multiple states, complicating accurate demand projections. A recent study from the Lawrence Berkeley National Lab acknowledged discrepancies in energy use predictions, estimating that data centers could consume between 6.7% and 12% of the nation’s energy by 2028.
Despite recognizing potential exaggerations in demand, utilities are incentivized to promote high figures to justify new infrastructure projects, such as Dominion’s extensive peaker plant initiative. Regulated utilities, like Dominion, can earn returns on their investments and transfer the costs to consumers, including expenses for necessary power transmission upgrades.
As some states consider solutions to these issues, Dominion has proposed a new rate structure tailored for high energy users, requiring long-term contracts that charge based on requested power, irrespective of actual use. Similarly, American Electric Power in Ohio introduced a tariff necessitating large-scale data centers to budget for a significant portion of their predicted energy use monthly.
In California, legislative efforts are underway to encourage data centers to source a majority of their energy from renewables through tax incentives and other measures. North Carolina has approved a green tariff to promote solar energy among data center customers, although this raises concerns about whether it merely subsidizes developments that would have occurred regardless.
These regulatory adjustments are complicated by the continuous energy demands of data centers, which lack flexibility during peak consumption times. Some tech companies are proactively seeking their own carbon-free energy solutions; for instance, Microsoft recently signed an agreement to reactivate the nuclear facility at Three Mile Island.
The surge in data centers presents undeniable challenges, particularly as climate change continues to loom large. As we grapple with rising utility costs and increasing fossil fuel dependence, it is crucial for regulators to set higher standards for energy demand projections from data centers. The focus should also shift towards integrating demand response and energy efficiency to address growing energy needs. Ensuring appropriate tariffs for large-load customers will play an essential role in protecting consumers amid escalating utility rates. Without proactive measures, the ongoing growth of data centers could re-establish harmful reliance on fossil fuels, undermining urgent climate initiatives.