In June, the FERC held a technical conference that focused on resource adequacy of the overall grid in the US, but it quickly morphed into a discussion focused almost entirely on PJM.

The results of the most recent capacity auction elevated the rhetoric around the topic of data-center-driven demand and whether it could overwhelm the grid. Given that capacity costs increased from $2.2 billion to $14.7 billion, projected data center-driven demand growth will likely be closely examined as a primary contributing factor.

Three consecutive years of highly subdued capacity prices seemed to lull market participants into ignoring what is now a serious supply shortage, as very few thermal projects were in the queue.

The theory that low prices cure low prices is applicable here, as very few entities could successfully finance new dispatchable generation projects, under those capacity price scenarios. At the same time, the construction of new data centers is proceeding steadily despite current constraints in the power grid.

Some are suggesting that new data centers bring with them their own generation, or, at least, procure projects to support the continued build-out. That is certainly being manifested by the return to the grid of mothballed nuclear plants and co-location proposals pushed by corporations eager to expand their AI operations.

According to CBNC, tech giants like Google, Amazon, Meta, and Apple had cumulative capital budgets of close to $300 billion for spending on artificial intelligence to keep up with demand on AI processing tools, IT processes, and more. With existing data centers in the US running above 90% capacity, demand continues to outstrip supply.

PJM said it now expects its summer and winter peak load will grow above 3% annually through 2035, up from a prior estimate below 2%. Some consider these forecasts to be based on “rosy scenarios” and that anything projected out beyond the 3-year time horizon is speculative conjecture, if that is such a thing. This skepticism stems from the unpredictability of market trends, policy changes, and technological advancements that can significantly alter demand forecasts over longer timeframes.

One must look at the capacity auction results to observe that those marginal MWs in demand from the data centers have created an acceleration to residential and commercial customer bills that has now gotten the attention of the Governors of the PJM member-states. Many are now calling for the states and utilities to reengage in the generation construction business which is a step towards re-regulation and vertical integration even though they would face the same cost escalation issues now facing Independent Power Producers.

Supply chain issues continue to persist, and the time required to develop and construct a plant remains a significant challenge.

It is an all-hands-on deck and an all the above solution matrix if this is going to be appropriately analyzed and solved. 

As the landscape changes, we continue to look for new methods to meet increasing demand. We provide solutions developed for commercial and industrial clients, aiming to support their operations in a dynamic environment.