Tech Giants, Developers And Utilities Team Up On 'Flexible' Data Center Projects

A new consortium of the largest players in the data center and power sectors plans to build a series of “test hubs” across the U.S. to turn data centers from a threat to regional power grids into a tool for strengthening them.

An unprecedented wave of electricity demand from data centers is straining regional power grids, slowing the pace of new data center development, creating financial and reliability problems for utilities, and limiting the adoption of renewable energy.

As the scale and repercussions of this growing power pinch have come into focus, a growing chorus of prominent voices, including some from within the Biden administration, has called for a fundamental change in the way that data centers operate. Rather than simply consuming hundreds of megawatts of electricity, data centers could utilize their emergency generators to become “flexible loads,” capable of disconnecting from regional transmission networks and operating under their own power when utilities determine that excessive demand is pushing the grid toward failure.  

Such flexible power consumption could turn data centers from grid liabilities into important assets for utilities when it comes to reliability, advocates say. But in the balkanized U.S. energy landscape, an array of barriers to adoption within the data center industry and across different energy markets and utilities has prevented meaningful headway.  

Now, energy think tank Electric Power Research Institute and a group of the largest data center developers, tech giants and utilities are launching an initiative to make flexible-load data centers a reality. 

Called DCFlex, the program plans to develop between five and 10 flexible-load data center test projects called micro sites in different energy markets across the country. The project is being spearheaded by data center providers like Compass Datacenters and QTS, tech companies like Google and Meta, and power providers like Southern Company, Constellation Energy and the Electric Reliability Council of Texas.

The goal of the initiative is to develop models and proofs of concept for the technologies, policies and operating practices needed across these sectors to make such grid-responsive data centers viable at a large scale across the country as quickly as possible, according to EPRI.

The initiative emerged at the behest of the Department of Energy, and participants have framed it as an effort to ensure that power shortages don’t create an infrastructure bottleneck that jeopardizes the U.S.’ position as the global artificial intelligence leader. 

“As a nation, we cannot afford to fall behind on AI. We need to invest in sustainable infrastructure to support big data applications, but not at the expense of other consumers of electricity,” Compass Datacenters CEO Chris Crosby said in a statement. “Compass is working collaboratively with our utility partners on planning and grid expansion, and glad to invest in EPRI's research to bring forward long-term solutions.”

After decades of stagnant energy demand in the U.S., power providers across the country have been caught off guard by the sudden surge in electricity demand, largely from data centers, that has emerged over the past two years. This demand is only expected to accelerate, with data centers projected to consume between 5% and 9% of U.S. electricity annually by 2030, up 4% from today, according to EPRI. 

Utilities in major digital infrastructure markets have been inundated with requests for grid connections for planned data center projects. This week, Texas utility CenterPoint reported that data center power requests have jumped 700% since earlier this year. 

Power providers have been scrambling to adjust to this new reality, investing billions of dollars in capital projects to build new transmission lines, substations and power plants and overhauling their organizations to better contend with the demands and risks that have emerged with the influx of data centers. 

For data center developers, access to electricity has become the primary constraint limiting the development of the new data centers. Wait times for grid connections in major markets are approaching 10 years as utilities go through the cumbersome process of building new transmission lines, substations and power plants. 

The nationwide transition to renewable energy has also been stymied by the spike in data center electricity demand, jeopardizing sustainability goals set by governments and the tech firms driving AI growth. 

Utilities like Georgia Power have recommissioned shuttered fossil fuel plants or delayed their retirement. But more broadly, data centers’ massive, constant electricity consumption makes them a bad match with renewable energy resources like wind and solar because their power production varies based on environmental conditions. Adding new data centers to the grid on the consumer side while simultaneously switching generation to wind and solar can be a recipe for grid instability. 

As the potential consequences of this AI-driven power crunch become more acute, there have been growing calls for data centers to go from simply being consumers of electricity to being active grid participants that can reduce their power consumption on demand when the grid is under strain. 

Many regional power systems already have some form of “demand response,” under which participating large energy consumers are paid for reducing the amount of power they use at the grid operator’s behest.

In doing so, these flexible loads reduce grid demand and help utilities avoid blackouts and other catastrophic events when energy demand is high but supply is low. 

This is particularly important in markets where a high percentage of electricity comes from renewable sources and solar and wind farms aren't producing energy. Demand response allows other grid users to access more renewables by giving grid operators demand-side levers to help them balance the more volatile energy supply. 

In places like Texas, large industrial power users like bitcoin mines regularly participate in some form of demand response. But other than a few scattered exceptions, data center operators have stayed on the sidelines in markets where such programs are offered. 

“It’s a proven model. Data centers have just been a little slow to adopt it,” Allan Schurr, chief commercial officer of distributed energy firm Enchanted Rock, told Bisnow last month.

Part of the problem is that data centers are mission-critical facilities that need to remain fully operational at all times. Unlike a bitcoin mine, they can’t simply shut down and stop using power. But data centers also have backup generators capable of producing all the power the facility needs, and advocates want to see operators use this on-site power generation to become flexible loads that can disconnect from the grid on command and rely on the electricity they produce themselves.

“Data centers have a choice: They can either create the problem or they can solve their own problem and help the grid,” Schurr said. 

But some obstacles have prevented this from happening thus far. Data center operators and tenants are inherently risk-averse, and participation in a program that would hand certain power management decisions to a third party and periodically remove a layer of redundancy for the facility’s energy supply would run afoul of most tenant contracts, experts say. 

Other barriers to adoption come from utilities and state governments. Not every market has demand response programs or the technical means to implement them quickly. Other issues include a potential conflict with state environmental regulations that could limit a data center’s ability to generate power on-site. 

The groups behind DCFlex say the initiative will create a blueprint for data center firms, utilities, policymakers and other stakeholders to make adoption of flexible load programs for data centers a reality. Each of the test sites, they say, will be “a living laboratory demonstrating innovative strategies for integrating data centers with the grid under various conditions to facilitate widespread adoption and replication.”

The effort is designed to produce results quickly, with testing at each site completed by the end of 2027. According to the organizations behind DCFlex, the program marks an important milestone in collaboration between the disparate industries and government agencies that will be required to solve the AI power crisis. 

“We see this moment as a generational opportunity for the public and private sector to work together to meet energy demand responsibly,” Caroline Golin, global head of energy market development and innovation at Google, said in a statement. “DCFlex will be an important collaboration vehicle to align our common goals, as we work together to build a stronger electrical grid for all.”