Dive Brief:
-
Three dozen U.S. utilities have adopted new large-load tariffs, with three to five of those tailored specifically to data centers, according to recent analysis by Enverus Intelligence Research. The group expects more utilities to adopt large-load or data center-specific rates.
-
Rate structures like the one AEP Ohio recently adopted could add $10 million in first-year costs to a 100-MW data center, the analysis found. These additional costs could cut new interconnection requests by half, it added.
-
Utilities that adopt large load tariffs might benefit from fewer interconnection requests in the long run, Enverus research analyst Adam Robinson said in an interview, because streamlined interconnection would allow utilities to connect large customers faster.
Dive Insight:
As utilities around the country grapple with meeting growing demand while maintaining affordability for existing customers, most are implementing large time-of-use charges, Robinson said.
And Enverus' analysis suggests this, in combination with other high fixed-cost policies, might prove to be a winning strategy.
High up-front and fixed costs appear to cut the number of interconnection applications a utility receives, Robinson said. AEP Ohio reportedly slashed its interconnection queue from 30 GW to just 13 GW earlier this year by implementing a data center tariff that requires those customers to pay for a minimum of 85% of the generation they claim they will need, even if they end up using less.
As the tariffs weed out more speculative loads, slimmer interconnection queues may help attract data center customers in the long run, Robinson said. Most of the largest hyperscalers, such as Google and Amazon, are willing to pay higher prices if it means they get access to power more quickly. But many of the requests currently ballooning utilities’ queues are more tenuous in nature.
“Anyone with an acre of land they think they could put a data center on is putting in an interconnection request,” Robinson said. “You get everybody joining the interconnection queue, and then the utilities have to spend time and resources doing studies and building infrastructure when those projects aren't going to get developed.”
Priya Barua, senior director of market and policy innovation for the Clean Energy Buyers Association, which represents many hyperscalers, said its data center members value speed and clear interconnection timelines and are generally willing to pay their fair share of infrastructure costs.
Exactly how much more they will pay for increased reliability and speed does tend to vary by company, she said.
Barua noted that a growing number of large load customers are exploring concepts such as colocated generation and “energy parks” — developments with dedicated generation where a data center might serve as an anchor tenant, but other commercial and industrial users work together to support the cost of building and maintaining that plant.
“But the majority of our members would prefer to be able to connect to the grid because of the scale of what they are supporting,” Barua said in an interview.
Most of CEBA's data center members would prefer tariffs that provide flexibility for innovative solutions, including colocated generation and other advanced technologies that reduce energy costs, she said.
While rate structures such as demand charges can create significant incentives for load flexibility, Robinson said it's unclear to what extent data centers will respond to these market signals.
“It's really difficult for some data centers [to be flexible] — they can't just cut their operations,” he said. “They have contracted out their GPUs and ... reliability is a really important business proposition.”
