The Rise of Data Centers in the Midwest
Southeastern Wisconsin and the Chicago area are emerging as major players in the national data center explosion, with Microsoft’s $3.3 billion planned data complex near Racine, Wisconsin being the most notable development. Clean energy advocates in the region view data centers as presenting both opportunities and risks, as they can significantly strain the grid, prolong the use of coal plants, and spur the construction of new natural gas plants, while also facilitating substantial investments in renewable energy.
Wisconsin utility We Energies, for instance, cited the demand from data centers in its recent requests to the Public Service Commission for 1,300 MW of new gas generation. Conversely, Microsoft has promised to build renewables in the state, even as the company’s activities are likely to create demand for new or continued fossil fuel energy.
The Midwest’s Appeal for Data Centers
The Great Lakes region is becoming an increasingly promising location for data centers due to its cooler climate, which helps reduce energy demand, and the availability of water. Josh Riedy, who helped design North Dakota’s first tier-three data center, stated that “there is no better place” for data centers than the Upper Midwest, as the region can “export data around the globe.”
The appeal of the Midwest is driven by several factors, including:
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Climate Advantages: The cooler temperatures in the region can help reduce the energy required for cooling data centers, a significant energy draw for these facilities.
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Water Availability: The abundance of water resources in the Midwest provides a reliable source for the water-intensive operations of data centers.
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Grid Resilience: The Midwest’s grid infrastructure, while in need of updates and improvements, offers a relatively stable and reliable power supply, making it an attractive destination for data center development.
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Land Availability: The Midwest’s ample land resources provide opportunities for large-scale data center campuses, with ample room for expansion and growth.
However, the influx of data centers also presents challenges for the region, as their energy-intensive operations can strain the existing grid and drive the need for significant infrastructure investments, both in terms of generation capacity and transmission.
Evaluating the Energy Impact of Data Centers
Data centers, including those processing cryptocurrency and running AI applications, are projected to significantly increase energy demand nationally, potentially ending an era of stagnant load growth. According to the Federal Energy Regulatory Commission, load growth is expected to increase by 4.7% over the next five years, up from the previous estimate of 2.6%.
The Clean Grid Initiative’s December 2023 report estimated that data centers “supercharged by the rise of artificial intelligence” will require between 9 and 13 GW of additional electricity over the next five years, not including the MISO or CAISO (California) regional transmission organizations. A McKinsey & Company report further predicted a total demand of 35 GW from data centers by 2030.
This load growth driven by data centers comes on top of the shift from fossil fuels to electric heating, cooling, and transportation, which is also contributing to increased energy demand. A 2022 report commissioned by Clean Wisconsin and RENEW Wisconsin found that load growth could increase to 166% of 2022 levels with the electrification needed to meet the state’s net-zero emissions goals by 2050.
Navigating the Grid Challenges
The energy-intensive nature of data centers poses unique challenges for the grid, as they require a constant and reliable power supply, often running at near-peak performance around the clock. This type of demand can put significant strain on the grid, as Josh Riedy explains:
“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. 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.”
In addition to the generation demand, the influx of data centers also necessitates grid updates and improved resilience, which can ultimately benefit the grid as a whole. Riedy notes that data centers’ insatiable need for power is leading to a shift in thinking about where to locate these facilities, with a preference for placing them near power generation sources to leverage off-peak power and take advantage of the overproduction from renewable sources like solar and wind.
Renewable Energy Opportunities and Challenges
The presence of data centers in the Midwest presents both opportunities and challenges for renewable energy development. On one hand, the significant energy demand from data centers can drive investments in new renewable generation, as exemplified by Microsoft’s plans to build a 250 MW solar array in Wisconsin.
However, advocates are also concerned that utilities may use the projected demand from data centers to justify investments in new natural gas generation, even when it may not be necessary. Ciaran Gallagher, the energy and air manager for Clean Wisconsin, expressed concerns about “an overinflation of expected demand in order to capitalize on this trend and build more gas as a last-ditch effort.”
Sam Dunaiski, the executive director of RENEW Wisconsin, acknowledged the potential for a “sky-is-falling scenario,” drawing parallels to the early 2000s, when load growth projections related to the internet were significantly overestimated. Dunaiski cautioned that “gas isn’t coal, but we shouldn’t be striving for the second worst option, for the environment or for our pocket books,” as customers would be paying for new gas plants for decades to come.
Moreover, the use of existing renewable or zero-emissions nuclear energy to power data centers can also impact regular utility customers, as Tom Content, the executive director of the Citizens Utility Board, explained:
“It 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.”
Balancing Economic Development and Environmental Concerns
As data centers continue to proliferate in the Midwest, policymakers and stakeholders are grappling with the need to strike a balance between economic development and environmental protection. While data centers can bring significant investment and job opportunities to the region, their energy-intensive nature raises concerns about the long-term sustainability and impact on local communities.
Clean energy advocates emphasize that data centers and economic development are not mutually exclusive, but rather that the path forward lies in ensuring that new renewable energy generation is built to supply the majority, if not all, of the data centers’ energy demands. Ciaran Gallagher of Clean Wisconsin stated:
“We think data centers and the economic development that they can bring are not at odds with environmental protection and climate mitigation. This can be a low-carbon industry but only if new additional renewables are built to supply all or most of their demands.”
Riedy, the data center expert, sees a mix of renewables and gas as a necessary approach to fueling data centers, noting that the intermittency of renewables can be mitigated by leveraging off-peak power and harnessing the overproduction from solar and wind to maintain a consistent energy supply.
Ultimately, the success in navigating the energy challenges posed by data centers in the Midwest will depend on the ability of policymakers, utilities, and data center operators to collaborate and develop innovative solutions that prioritize both economic growth and environmental sustainability. By striking this delicate balance, the region can harness the potential of data centers while ensuring a clean and resilient energy future.
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