Wave Of Nuclear-Powered Data Centers Faces Opposition From Utilities

Nuclear power plant owners are pursuing a series of new development deals with data center firms, but objections from competing utilities could scrap these plans.

Dominion Energy revealed last week that it may pursue data center development adjacent to its nuclear power plant in Connecticut, the latest in a wave of nuclear operators exploring deals that would see data centers build next to — and purchase their power from — these older generating stations.

Amazon opened the floodgates six months ago by acquiring thousands of acres at a Talen Energy plant in Pennsylvania, and similar deals are reportedly being explored by power producers in Maryland, New Jersey, Ohio and Texas. 

But at least two of these agreements are being challenged by a coalition of utilities that say the deals will lead to higher prices for consumers and threaten grid reliability. Looming decisions by federal and state regulators will determine whether these nuclear campuses end up being a viable solution for the data center industry’s mounting power woes. 

“The emergence of data center colocation at existing generation facilities is a business arrangement that raises questions that should be explored regarding issues of basic fairness for all customers on the grid,” Tony Clark, a former commissioner with the Federal Energy Regulatory Commission, told a House subcommittee this spring. “Regulators and policymakers must scrutinize how these deals will impact other customers and the public interest at large.”

In March, Talen Energy announced it had sold hundreds of acres adjacent to its Susquehanna nuclear power station in rural Pennsylvania to Amazon Web Services, with the cloud giant planning as many as 15 data centers on the site. The $650M land deal was tied to a “behind-the-meter” power agreement, a long-term contract in which AWS would buy all the electricity for the campus — as much as 960 megawatts — directly from the neighboring power plant instead of from the regional grid. 

This arrangement was the first of its kind between a nuclear operator and a data center firm, and it provided a model that other utilities quickly sought to replicate in markets across the U.S.

Constellation Energy indicated last month it is in talks with firms looking to bypass the grid by building data centers adjacent to its Calverts Cliffs nuclear power station in southern Maryland. Meanwhile, Public Service Enterprise Group is in talks to provide power to data centers from a pair of nuclear power stations in southern New Jersey, according to the firm’s leadership, while utility Vistra is reportedly considering behind-the-meter deals with data center operators in Texas and Ohio.

Most recently, Dominion Energy indicated on a quarterly earnings call that it is considering connecting a data center campus directly to the Millstone Power Station, a nuclear plant in Waterford, Connecticut. 

This kind of behind-the-meter colocation agreement has significant appeal from a pricing perspective for both data center operators and energy firms, experts say. The nuclear facility can secure a long-term power purchase agreement priced above what it could charge selling energy to the regional grid. Data centers also end up getting favorable pricing because they avoid the transmission and distribution fees charged by grid operators.

For the world’s largest tech firms and the third-party data center providers that serve them, these deals also represent a rare opportunity to acquire large chunks of energy quickly. Direct connections to nuclear plants also eliminate emerging grid reliability concerns as data centers put growing strain on regional transmission systems. 

“[We are] having conversations with all the large technology companies that are out in the data center space about potential projects at any number of our sites,” Constellation Senior Vice President of Public Policy Mason Emnett told The Baltimore Sun. “They’re looking for a large source of reliable, carbon-free power, and nuclear units have available, reliable, carbon-free power. So, it’s a match we’re hoping we’re able to make.”  

Plans for these nuclear data centers have faced immediate opposition from a coalition of utilities and grid operators, which have argued that such behind-the-meter deals come at the expense of power consumers and risk driving up prices and hurting grid reliability. 

American Electric Power and Exelon, the parent company of several regional utilities throughout the U.S., filed objections in May to the deal between AWS and Talen with FERC, asking the regulator to hold hearings on the issue or reject the deal outright. FERC is expected to make a ruling before the end of the year.  

In Maryland, Baltimore Gas and Electric, also an Exelon subsidiary, proposed an amendment to a state consumer protection bill that would have effectively prohibited the kind of colocation deal Constellation is pursuing. The state’s utility regulator is considering whether to recommend adopting that language to the Maryland Legislature, with a decision expected in December. 

In both cases, opponents of the behind-the-meter data center deals say that such arrangements reallocate power that once benefited all customers in a regional grid and, in doing so, effectively reduce the regional power supply. This alters the supply and demand dynamic and potentially pushes up rates for other consumers.

In filings with regulators, opponents have framed their objections as a matter of fairness. They say these data centers might be directly connected to a power plant, but they are still pulling from the same energy supply as the rest of the grid but without paying the same fees as everyone else. The result is that other consumers are stuck with tens of millions of additional costs and a less reliable grid. 

“Every such co-located load configuration must be studied to protect system reliability,” BGE wrote in a filing with Maryland regulators. “To pretend the end-use customer in a co-location arrangement is not a retail customer — or, perhaps, not load at all — that does not depend upon or affect the electric grid, as some proponents do, threatens reliability failures.”

Talen, Constellation and other firms pursuing colocated data center development have countered that market prices won't be impacted any differently than if the same data center bought its power directly from the grid. Behind-the-meter deals will improve grid reliability because the colocated campus won't take up capacity on regional transmission infrastructure, they say. 

They also accuse opponents of pretending to protect consumers when they are actually protecting their bottom line. In filings with state and federal regulators, Talen and Constellation accused utilities of trying to scuttle direct energy sales to data centers primarily because they will miss out on the transmission and delivery fees data centers would otherwise have to pay. 

“What is incomprehensible is the utilities’ attempt to make the utility-build alternative the only option in order to add tens to hundreds of millions of dollars to their rate base compared to the alternative of co-location,” Constellation representatives wrote in a July filing with Maryland regulators. “Padding utility revenues on the backs of Maryland consumers is particularly egregious at a time when utility rates already are skyrocketing.”