After a scorching summer that saw electricity bills soar, experts told lawmakers Wednesday that they should eschew costly utility mandates, invest in technology like carbon capture, and avoid shutting down power plants before replacement power sources are up and running.
Wednesday’s hearing of the Assembly’s utilities committee was called to address complaints from South Jersey residents about dramatic electric bill spikes, and it came in the midst of New Jersey’s push for broader electrification that could push power demand yet higher.
Jason Stanek, executive director of government services for PJM Interconnection, the grid operator for New Jersey and 12 other states, said New Jersey should not advance policies that shut down power sources unless they have replacements that are operating.
The state’s last two coal-fired power plants closed in 2022, and wind projects meant to boost its generation capacity have faced cost and other hurdles.
“To minimize rate impacts, we would respectfully request avoiding any policies that are designed to push resources off the system before we have an equal and equivalent amount of replacement resources,” Stanek said.
Swings in energy supply and demand can put pressure on rates, especially when supply falls as demand rises.
Stanek noted electricity prices at its annual July capacity auction surged nearly nine times higher than the previous year. Utilities procure electricity through the auction and sell it to ratepayers at cost but can generate a profit from transmission, among other things.
Rate Counsel Brian Lipman said the higher auction prices would add between $12 and $15 to customers’ monthly electricity bills beginning in June.
Improvements to energy efficiency had helped tamp down on demand for more electricity generation in recent decades, though that trend has since reversed, Board of Public Utilities President Christine Guhl-Sadovy told the committee.
Growing electrification, increased uptake in electric vehicles and their charges, and surging demand for data centers spurred by a boom in artificial intelligence are set to push New Jersey’s energy needs up significantly, said Assemblyman Wayne DeAngelo (D-Mercer), the committee’s chairman.
“If you have a quick charging station, they use 100 amps. That’s the amount of power that’s in a small residential house,” said DeAngelo, an electrician by trade. “As we’re moving New Jersey across and increasing our bandwidth and the need for data — be mindful as AI is coming into the picture and becoming more prominent — one data center that they’re talking about building is going to need 800 (megawatts).”
That data center alone would consume nearly a quarter of the electricity produced by three nuclear power plants in South Jersey that, according to the U.S. Energy Information Administration, accounted for 43.5% of the state’s energy generation in 2022. Combined, the plants produce 3,457 megawatts of electricity.
Some suggested New Jersey’s ambitious renewable energy goals, which call for the state to draw 100% of its power from renewable sources by 2035, wouldn’t help the state meet electricity demand in the short run.
“We need to be moving towards that clean energy future, but we also need to be investing in some of the technologies of where we are today. There are technologies that can help out the use of natural gas, like carbon capture,” said Rich Henning, president and CEO of the New Jersey Utility Association.
Others suggested regulatory changes would push power prices down.
Lipman, the rate counsel, said changes to federal rules that would include more electric capacity in PJM auctions would push down rates, and he urged an end to legislative mandates that forced utilities to invest in infrastructure or raise other costs passed along to ratepayers, like a $300 million annual subsidy to the state’s nuclear plants that is due to lapse on June 1.
In New Jersey, most utilities can earn 9.6 cents for every dollar invested in addition to recouping their expenses. Those costs are typically borne by ratepayers.
“We’re forcing them to invest, and they’re not doing that for free. They’re coming back and they’re seeking their money,” Lipman said, adding new oversight of transmission could also control costs.
Environmental advocates are hailing a decision by Massachusetts regulators that will give more than 1.3 million households access to lower winter electricity prices if they use a heat pump in their home.
Public utilities regulators on Monday ordered National Grid, the state’s second-largest electric company, to develop a lower, seasonal rate for houses with heat pumps. The decision comes three months after the state approved a similar rate plan by Unitil, an electric utility that serves 108,500 Massachusetts households.
“They hit the nail on the head here,” said Kyle Murray, Massachusetts program director for climate and energy nonprofit Acadia Center.
Heat pumps are a major element of Massachusetts’ strategy for going carbon neutral by 2050. However, high electricity prices and historically low natural gas prices make switching to a heat pump financially difficult for many people. Unitil’s pricing plan is an attempt to bridge that affordability gap and make heat pumps more accessible, said spokesman Alec O’Meara.
National Grid had proposed a technology-neutral “electrification rate” that would have offered a discounted rate to high-volume electric consumers, whether the power demand was coming from an efficient heat pump, inefficient electric resistance heat, or even a pool heater. Environmental activists, advocates for low-income households, a solar industry group, the state energy department, and the state attorney general all filed comments objecting to this approach and pushing for a heat pump-specific rate like Unitil’s.
“The proposal that National Grid had filed wasn’t going to do anything to ensure that customers who opted into their electrification rate were actually participating in our decarbonization efforts,” said Priya Gandbhir, a senior attorney with the Conservation Law Foundation, one of the groups that pushed for a heat pump specific rate.
In their order, regulators sided with the objectors. They concluded that National Grid’s proposal did not meet the state’s legal mandates to consider the impact of rate design changes on greenhouse gas emissions and energy efficiency, as opposed to Unitil’s approach, which removes a barrier to lower emissions and greater efficiency.
“The heat pump rate will reduce kilowatt hour electricity rates for these customers during winter when heat pumps replace fossil fuel heating equipment, furthering the reduction of greenhouse gas emissions,” said Alanna Kelly, spokesperson for the state department of public utilities.
The order also encouraged National Grid to create the rate quickly so it could be in effect before the coming winter heating season.
Xcel Energy is proposing a new approach to powering the grid in Minnesota.
The utility recently told state regulators it wants to build a network of solar-powered energy storage hubs, located strategically on its grid and linked with technology so they can be operated in concert with each other.
The result would be what’s known as a “virtual power plant.” By simultaneously discharging the batteries, for example, the collection of distributed resources can function similar to a conventional power plant.
It’s a solution some clean energy advocates have long pushed for as an alternative to larger, centrally located projects that are more reliant on long-distance transmission and create fewer local economic benefits. Xcel’s new embrace of the concept likely reflects the evolving economics of clean energy and the urgency to replace generation from retiring coal-fired power plants.
“I welcome our now-agreement about the importance of distributed energy resources in their future procurement plans,” said John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance.
Virtual power plants 101
Virtual power plants use sophisticated software and technology to aggregate energy from batteries, smart thermostats, electric vehicles, storage and other connected devices. The clean energy nonprofit RMI predicts virtual power plants nationally could reduce peak loads by 60 gigawatts and cut annual energy expenditures by $17 billion by 2030.
Several utilities, as well as solar and storage companies, have developed virtual power plant programs around the country. Perhaps the best-known is National Grid’s ConnectedSolutions program in New England, which includes residential batteries, electric vehicle batteries, and thermostats.
In May, Colorado Gov. Jared Polis signed legislation requiring Xcel Energy to create a virtual power plant plan in that state by next February.
Xcel is pitching the Minnesota project on its own as part of its latest long-range resource plan. In a recent Public Utilities Commission filing, Xcel proposes combining 440 megawatts of solar power with 400 megawatts of battery storage at dispersed locations. Designed to be flexible, the program might add backup generation and energy efficiency measures in the future.
A virtual power plant, Xcel said, would save ratepayers money, improve reliability, accelerate clean energy development, and reduce energy disparities by playing assets in underserved communities. The “new approach equips us to confidently meet incoming load growth, deliver unique customer and community value, and support economic development,” the company said in its filing.
Kevin Coss, a spokesperson for the company, said the proposal “is part of a larger plan to better serve the grid and our customers while meeting anticipated growth in energy demand. The program would grow our distributed energy resources as a complement to our existing plans for additional utility-scale renewable and firm dispatchable generation to advance the clean energy transition.”
Advocates reaction
Clean energy advocates say the approach could reduce Xcel’s need to build more infrastructure at a time when electricity demand continues to grow and its fleet of aging fossil fuel plants reach closure dates.
A recent study in Illinois suggested that pairing solar with storage could be the most economical and environmentally beneficial way to maintain grid reliability as the state transitions to 100% clean energy.
“Utilities always treated distributed energy resources as something that happened to them and that they had to figure out how to accommodate because they were being told to,” said Will Kenworthy, Vote Solar’s Midwest regulatory director.
The company’s interest in more distributed resources could lead to a more flexible grid, one that helps mitigate substations congestion and allows it to store energy from wind farms for use during high-demand periods, Kenworthy said.
One area of disagreement between the utility and some clean energy advocates is who should own the facilities. Unlike in Colorado, Xcel is proposing to own the Minnesota solar and storage hubs itself, collecting money to build them — plus a rate of return — from ratepayers.
That’s not the best deal for customers, and it prevents local communities and developers from being able to share the financial benefits of distributed energy, said Farrell, of the Energy Democracy Initiative. If Xcel owns the virtual power plant, the cost could be higher than they would be with an open, competitive process.
Farrell pointed to the recent opposition to an Xcel electric vehicle charging plan in which it sought to own all of the chargers. Convenience stores and gas stations argued Xcel had an unfair market advantage as the incumbent utility and would own too much of the state’s charging network. Xcel withdrew the proposal in 2023 after regulators reduced the charging network’s size.
As Xcel’s plan evolves, Farrell wants Xcel to allow businesses, homeowners, and aggregators to also participate by selling their battery capacity or demand response into the program.
The Minnesota Solar Energy Industries Association, which promotes battery storage, also takes a dim view of Xcel owning a virtual power plant.
“This is an area where competition would likely provide better service, lower cost and more choice to ratepayers,” said regulatory and policy affairs director Curtis Zaun. “Monopolies are not particularly good at providing the best service at a reasonable rate because that is inconsistent with their investors’ interests.”
Getting the details right
Virtual power plants are different than demand response, such as thermostat savings programs, in that they add value to the grid “without any change needed to the homeowner’s behavior,” said Amy Heart, senior vice president for policy at Sunrun, a home solar and storage company that participates in virtual power plants in the Northeast and in Texas, California, and Puerto Rico.
Heart said the “devil is in the details” when creating a robust demand response program. A program in Arizona failed, she said, because of the underperformance of the single company it selected to aggregate resources.
Sunrun developed a virtual power plant in four New England states, enrolling more than 5,000 solar and storage customers to share their capacity on the grid. In the summer of 2022, Sunrun’s virtual power plant shared more than 1.8 gigawatt hours of electricity.
Typically, Sunrun customers agree under contract to share a portion of their battery backup 30 to 60 times annually for three hours or less for each event. The process is automated, with Sunrun’s software connecting to customer batteries and sending utilities power during high-demand times or predictable peak loads. Customers receive payment for the electricity provided.
Heart said the best systems are open to individual customers and aggregators using different battery storage brands. Giving a virtual power plant “room to grow, breathe, and adapt will be important,” she added.
The Xcel virtual power plant proposal is part of the multi-year Upper Midwest Integrated Resource Plan, which regulators have been reviewing and will likely approve, with many changes, later this year.
Southeastern Wisconsin and the Chicago area are emerging as major players in the national data center explosion, most notably with Microsoft’s $3.3 billion planned data complex near Racine, Wisconsin.
Clean energy advocates in the region say data centers pose both a risk and an opportunity, as they can put major stress on the grid, prolong the lives of coal plants and spark new natural gas plants, but also facilitate significant renewable energy investment. Wisconsin utility We Energies, for example, cited demand from data centers in its recent requests to the Public Service Commission for 1,300 MW of new gas generation. Microsoft, meanwhile, has promised to build renewables in the state while also likely creating demand for new or continued fossil fuel energy.
The organization Data Center Map shows more than a hundred data centers in the Chicago area and a handful in Southeastern Wisconsin, often located on the site of former coal plants or industrial operations. A data center is underway on the site of the shuttered State Line coal plant just across the border from Chicago in Indiana. The data center developer T5 recently announced plans for four to six data centers totaling 480 MW of capacity and costing as much as $6 billion in the Illinois town of Grayslake near the Wisconsin border, adding to data centers it already runs in the region.
Virginia has long been known as “Data Center Alley,” with about 70% of global internet traffic passing through its servers, according to the Wall Street Journal. Dominion Energy said that because of data centers, its electricity demand in Virginia could quadruple and represent 40% of total demand in the state over the next 15 years. Georgia and Tennessee have also seen much data center construction and speculation. Utilities like TVA, Duke and Dominion have announced plans to build more gas plants and keep coal plants open longer in that region, along with building renewables.
Meanwhile, some experts say the Great Lakes region is an increasingly promising spot for data centers because of its cooler climate that reduces energy demand and the availability of water.
“There is no better place” for data centers than the Upper Midwest, said Josh Riedy, who helped design North Dakota’s first tier-three data center, referring to a data center with high reliability — on a scale of one to four tiers — that includes multiple power sources. Riedy also founded Thread, a grid maintenance software company that he’s marketing as especially helpful to serve data center demand.
“The Upper Midwest can export data around the globe,” Riedy said. We’re starting to see the tide turn, it’s just natural.”
Growing load
Projections abound regarding the way data centers — including those processing cryptocurrency and running AI applications — will increase energy demand nationally and end an era of stagnant load growth.
Last year, the Federal Energy Regulatory Commission predicted 4.7% load growth over the next five years, up from 2.6% previously estimated for five-year growth. Data centers “supercharged by the rise of artificial intelligence” will require between 9 and 13 more GW of electricity over the next five years, according to seven case studies analyzed in a December 2023 report by the Clean Grid Initiative, which does not include data center estimates for MISO or CAISO (California) regional transmission organizations. A McKinsey & Company report predicted 35 GW of total demand from data centers by 2030.
Load growth sparked by data centers comes on top of a shift from fossil fuels to electric heating, cooling and transportation. A 2022 report commissioned by Clean Wisconsin and RENEW Wisconsin found load growth could increase to 166% of 2022 levels with building and vehicle electrification needed to meet the state’s goals of net-zero emissions by 2050.
“Everything from data centers to manufacturing to AI to cryptocurrency,” said Sam Dunaiski, executive director of RENEW Wisconsin. “These all could be triggers for new load, and it all could be coming to Wisconsin, though it’s not unique to Wisconsin. Things like solar and battery manufacturing are coming online that ironically need new load growth too. We think the best way to meet that new load both environmentally and economically is through renewables and transmission to go along with it. This is a great opportunity for a low-cost renewable energy boom in the state.”
Along with the generation demand, Riedy noted, come needs for grid updates and resiliency, which can ultimately help the grid as a whole.
“If you’ve built and designed a data center, you know the nature of them is in many ways fundamentally different than most energized structures,” Riedy said. “Walmart, for example, is going to consume power, but it will have peaks, and constant power is important but not in the way it is to a data center. With crypto mining or AI model training, you see machines running at near peak performance around the clock. That’s producing a type of strain on the grid that has few comparisons.”
Microsoft and more
Microsoft’s energy plans — like many details about the massive data project — are not yet clear, and the company’s ambitious climate goals give advocates hope that the company will finance much new renewable generation either on-site or through power purchase agreements. The company has announced it will build a 250 MW solar array in Wisconsin.
But Microsoft will likely also purchase power from We Energies, fueling advocates’ worries about new natural gas generation and rate increases for regular customers.
The data center will be located on the sprawling site between Milwaukee and Chicago that was previously slated for an enormous LCD screen factory by the company Foxconn. That plan was repeatedly scaled back and then scrapped in the face of economic issues and local opposition.
Citizens Utility Board executive director Tom Content noted that “under state law passed for Foxconn, Microsoft is eligible for discounted market-based electricity rates. They would pay basically for the transmission and distribution, but a portion of their rates would just be set at wholesale market rate,” rather than the retail amount customers usually pay.
In February, a subsidiary of We Energies filed a plan with the Wisconsin Public Service Commission for an estimated $304 million in grid upgrades related to the Microsoft project. Public auditors filed a letter with the commission noting exemptions that allow less oversight because the project is in a special technology zone.
The Microsoft plan was touted by President Joe Biden as an example of reinvigorated Midwestern investment, but it has faced concerns about its energy and water use. Meanwhile Microsoft has faced setbacks globally in reaching its climate goals, in part because of the massive energy demand of artificial intelligence applications.
Cost concerns
Advocates said utilities may use data centers to justify more investment that earns them a rate of return, even when it is not necessarily needed.
“We are concerned that there could be an overinflation of expected demand in order to capitalize on this trend and build more gas as a last-ditch effort,” said Ciaran Gallagher, energy and air manager for Clean Wisconsin.
“There’s a little bit of a sky-is-falling scenario here,” Dunaiski agreed. “In the early 2000s we saw this with load growth [projections] particularly around the internet. People thought the internet would cause our electricity generation needs to explode. They increased, but there were improvements that came with it — infrastructure getting more efficient, and software.”
That precedent raises questions about the rush to build out gas power to accommodate projected demand.
“Gas isn’t coal, but we shouldn’t be striving for the second worst option, for the environment or for our pocket books,” Dunaiski continued. “If we build these gas plants, customers will be paying for them for the next 20, 30 years.”
“All the gas plants proposed in Wisconsin and across the country in relation to this demand from data centers will have to comply with these standards, and by 2032 either run not very often or reduce greenhouse gas emissions by 90% through carbon capture and sequestration or low-carbon hydrogen,” Gallagher said. “That prompts the question: Is it worth the price tag to build these gas plants that could become stranded assets or have to spend additional money to comply with these rules?”
Using existing renewables or zero-emissions nuclear energy to power data centers can impact customers too. Content noted that this strategy “accomplishes the decarbonization goals for the tech companies and the reliability needs for the data center. But then you’re taking the fully depreciated, mostly paid-off asset on utilities’ books and having it serve one or two customers, and then the utilities will have to backfill that with a combination of natural gas, solar, storage, wind or future nuclear to serve the rest of the customers.”
“It’s on everybody’s mind how we’re going to tackle this in a way that ensures we don’t say no to economic development, but don’t make energy costs unaffordable,” said Content, noting that data centers have been a major topic of discussion among the National Association of State Utility Consumer Advocates – including at the organization’s conference in Madison in June.
“Different states are trying different approaches,” Content said. “There’s talk of changing the way utility costs are divided up — currently among residential, industrial and commercial — and dividing it up four ways, with data centers becoming their own entity. Tech companies are pouring a lot of money into the development of these things. They have the wherewithal to contribute mightily to these projects.”
Renewable opportunities
Gallagher emphasized that renewable advocates are not opposed to data centers.
“We think data centers and the economic development that they can bring are not at odds with environmental protection and climate mitigation,” she said. “This can be a low-carbon industry but only if new additional renewables are built to supply all or most of their demands. We think that’s viable if renewables are cost-competitive with gas, and pairing renewables with storage can provide the type of reliability these data centers need.”
Riedy sees renewables and gas as a necessary mix to fuel data centers. While renewables’ intermittency might be seen as a barrier, he said renewables actually could have a unique role to play in energizing data centers – especially in the Midwest.
“In the heat of the day you’re delivering, so having alternate [energy] sources to peak-shave and normalize the cost of energizing that equipment is very important,” Riedy said. “It’s leading to a change in thinking around where to place data centers, that speaks to Wisconsin, the Dakotas.
“The old way of doing things was generate power in one place, and transmit it for thousands of miles. What data centers are understanding with their insatiable and constant need for power is they are more logically placed by power generation so you can buy that off-peak power, to maintain that load consistently. Since solar and wind overproduce [at certain times], if you can harness that imbalance it’s somewhat of a win-win.”
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