Power Planning for Data Centers

Missed our previous post on interconnection timelines and utility coordination? Catch up here.

As data centers grow larger, they’re increasingly on the radar of grid operators and reliability regulators. Utilities typically plan to meet peak demand five to ten years in advance, but AI-focused facilities now often require 200 MW or more, with ultra-high availability (99.999% or “five nines”) around the clock (McKinsey). This rapid, concentrated growth poses a challenge to both long-term planning and daily operations.

Power Needs and Time-of-Use Considerations

According to the Lawrence Berkeley National Laboratory’s Queued Up 2024 report, the national interconnection backlog now includes more than 2,600 gigawatts of proposed generation and storage—an all-time high. Many of these are hyperscale and AI-driven projects, further intensifying the pressure on planners and transmission providers.

In addition to running servers, data centers consume large amounts of electricity for cooling, networking, and backup. These significant load increases strain the grid and challenge the normal operational assumptions of grid planners and operators. Providers must manage supply for these high-consumption customers while maintaining stable service for everyone else, pushing many utilities to revisit their long-term forecasts and resource plans.

Tips

• Evaluate Early: Conduct feasibility studies to identify potential barriers (e.g., limited right-of-way or prohibitively costly upgrades).
• Know the Grid’s Origins: Today’s systems were designed to handle short, seasonal peaks—large data center loads can exceed those assumptions.
• Creative Solutions: Consider backup generation, demand-side management, or resource-sharing agreements to help smooth peak loads
• Strategic Cooperation: Collaborate with utilities on curtailment or flexible load strategies to accelerate interconnection timelines and ensure reliable service for all.

Off-Grid Options: Looking Beyond Traditional Power Connections

Some developers are now exploring off-grid or behind-the-meter options, using on-site generation such as renewables, fuel cells, or nuclear – potentially using the grid as a backup. These models can cut interconnection wait times and reduce costs, but they require careful vetting of technical, legal, and economic feasibility.

Local and federal regulations may limit which off-grid or partial off-grid designs are permissible, and the feasibility of supplying power to the site must be carefully assessed. Always conduct thorough due diligence before finalizing any off-grid approach.

Tips

• Assess Generation Infrastructure: Know what it takes to support self-sufficient or partially off-grid models, such as available fuels, generation technologies, and the infrastructure needed to support them on-site
• Understand the implications on reliability: the grid can help ensure voltage and frequency stability and provide operational support if on-site equipment fails.
• Design for Flexibility: Build in the ability to shave peaks or shift loads in coordination with grid needs.
• Understand the Grid Stakeholder Community: Regulations and expectations vary widely. Ensure compliance and communicate proactively.

What Developers Should Know Upfront

• Location Matters for Cost: Power prices, incentives, and grid constraints vary significantly by region. Some areas offer cheaper electricity or tax incentives but may have limited capacity or require expensive upgrades.
• Coordination is Key: A proactive approach with regulators, utilities, and local communities can prevent costly surprises. The approvals and engineering studies can be extensive, but a transparent relationship helps everyone anticipate upgrades and funding responsibilities.
• Sustainability Requirements: Pressure is growing to demonstrate cleaner energy use. States vary widely in how they regulate, incentivize, or even limit data center builds based on grid impacts and sustainability goals.

Common Challenges

1. Long Lead Times: Queues are backed up. Mitigate supply chain risks by getting ahead on designs during the permitting/interconnection process and securing valuable production slots
2. High Capital Costs: Infrastructure upgrades can cost tens or hundreds of millions, often raising questions about who foots the bill—utilities, developers, or ratepayers. Thorough efforts at the development stage can uncover these realities and inform site preference without waiting on the utility.
3. Regulatory Complexity: Rules on how data centers share or bypass the grid vary by region. Federal Energy Regulatory Commission orders also shape whether certain behind-the-meter arrangements are permissible. Knowledgeable consultants can assist in navigating this evolving picture.
4. Siting Hurdles: Even in areas with robust incentives, local communities can push back due to community impact, land use, or environmental concerns. Once your project seems feasible, it’s engaging positively with the community early is best. Find out their concerns and become a partner in solving or mitigating them.
5. Future Scaling: AI and cloud expansions mean tomorrow’s facilities may require two or three times the power of today’s designs, further straining local grids. As time passes, BYOG or Bring Your Own Generation will likely become table stakes.

Final Thoughts

The modern data center is both a driver of innovation and a stress test for the grid. Developers who anticipate complexity, collaborate with stakeholders, and explore flexible power solutions are better positioned for long-term success.

In a world where every megawatt matters, early preparation and strong partnerships make all the difference.