Texas's decision to stop powering data centres reflects US reckoning with 'ghost demand'

The demand for electricity by data centers in the middle of the United States is roughly equivalent to the amount needed to power all homes across the country. However, much of this demand could be an illusion.

Texas, in an effort to determine what is true, became the first major hub for data?centers to freeze new grid connection and investigate their plans. In an effort to solve the problem, other states in the U.S. are also taking similar measures.

The review of utility data and grid data revealed that the electricity demands of very large power consumers, mainly data centers, exceeded 700 gigawatts, or more than ten times the industry's estimates of current U.S. Data Center Power Use, across parts of the Midwest and Mid-Atlantic.

Consumer advocates and regulators warned that many requests were likely to be duplicates or made by companies that lacked the funding or expertise to complete the projects. This could stymie grid-planning, which is vital to keep the lights on.

Some of these warnings have now been validated. Major utilities are now reducing their data center demand numbers once financial safeguards like requiring upfront payment are in place.

Data center hotspots like Texas, Pennsylvania, and Ohio are enacting rules to filter projects that may drive up costs and cause political backlash before they even get built.

Thomas Gleeson, Chairman of the Texas Public Utility Commission in March, said that if you don't have a clear understanding of what's real you can't build an infrastructure to support it.

GHOST DEMAND

Companies and landowners with access to electricity or grid connections rushed to take advantage of the Big Tech AI data center boom. They secured electricity needed to run these facilities.

According to grid operator ERCOT documents and Governor Greg Abbott's statements, since 2023 the requests for data centers and large energy users to be connected to the Texas grid has soared to over 474 gigawatts. This makes it the fastest growing region in the world for AI and cloud servers warehouses.

According to the most recent quarterly earnings calls of utilities, outside of Texas, the data center electricity demands in 10 of the largest U.S. utility companies in the Midwest and Mid-Atlantic, as well as the U.S. South have reached?270 gigawatts.

Utility companies do not have a standard way of reporting requests for electricity from Data Centers. Some only report projects with signed contracts, while others tally all inquiries.

However, when states and utilities take a closer look at data centre electricity projects and implement requirements such as large upfront deposits, a chunk of this demand can disappear.

"Entities that rushed in because it was a pot of gold are now perhaps learning the hard-way just how difficult this is to construct and bring online," Daniel Farris said, an attorney with Foley & Lardner who advises hyperscalers and data center developers. These companies include Amazon, Alphabet’s Google, and Microsoft.

Exelon, based in Chicago, has reduced its high-probability demand for data centers by 40% to 11 gigawatts. The company announced this on July 30th during an investor presentation after it began imposing more stringent collateral requirements.

The Ohio electric utility AEP Ohio saw its data center power demand drop by over half after state regulations adopted last year included grid connection fees up to $100,000 for data centers.

According to Tyson Slocum, Director of the Energy Program of consumer advocacy group Public Citizen, the uncertainty surrounding data center electricity usage raises the possibility that utilities will either underbuild and endanger the grid's stability, or overbuild in order to accommodate projects that may never be realized, leaving the average American with the bill.

Slocum stated, "I believe part of what Texas is trying to achieve is creating some order and imposing some transparency on an industry in many parts of the country that is still like Wild West."

PJM Interconnection - the nation's largest grid, which covers 13 states including Data Center Alley, Virginia - has already seen costs increase due to electricity requests from data centers. According to Monitoring Analytics, the increase in data center costs was due to the growth in demand for existing and future centers.

Even though utilities have drastically reduced demand forecasts, there are still enough data center requests that can overwhelm grids with limited supplies.

Jeff Shields, PJM's spokesman, said: "The load is showing and the generation is not moving at a pace that we require."

Auditing the Unknown

Abbott's Texas order includes a comprehensive audit that requires that all proposals for powering up data centers disclose who owns them, as opposed to the previous rules which only allowed an affiliate to be disclosed.

Gleeson will chair the state Public Utility Commission and ERCOT, the grid operator, are responsible for implementing this directive. The directive also requests details on whether or not data center projects depend on taxpayer-funded incentive programs, water usage and on-site energy generation plans.

Abbott, in an update to his order, said that "the PUCT and the ERCOT can't make decisions to guarantee grid reliability and stability based on information that is substantially incomplete."

Pennsylvania Governor Josh Shapiro has made a similar decision. His state's abundant natural gas and electricity have attracted a lot of interest in data centers.

Shapiro signed an executive order for data centers on 18 August that included stricter requirements regarding permits and disclosures of plans and users of projects exceeding 25 megawatts.

A member of the Governor's Office said that only 20 data centers in the state have applied for the permits required to advance the projects.

The official stated that most proposals did not have power sources or customers who would be crucial to the funding of server warehouses.

(source: Reuters)