Tech companies are taking their energy needs into their own hands. This year, Amazon purchased a 960-megawatt data center campus from Talen Energy for $650 million, with plans to buy power from Talen’s neighboring nuclear power plant. Stocks have soared for companies with exposure to nuclear energy, with Constellation Energy up nearly 50% year to date as of July 24, compared to the S&P 500 Index return of around 14%.
In a sign of what’s to come, Dominion Energy is building a $10.3 billion to $11.3 billion offshore wind farm to help meet demand and comply with emissions legislation. The company currently provides electricity to most data centers in the United States, which are largely located in northern Virginia’s “data center alley,” according to ratings agency Standard & Poor’s. California is a distant second, with dozens of other markets in the Southeast, Texas, Ohio and Arizona planning facilities.
Hinshaw foresees regulators incentivizing companies to develop more capacity, much like Dominion’s offshore wind project. That’s because the increase in data centers could tighten electricity supply across the country. Concerns have already surfaced about potential grid reliability as critical infrastructure is used more often when electricity demand peaks.
Building new capacity does not come without risks. Namely, what if demand requirements fall short? On that front, fierce competition for electricity has given utilities negotiating power when it comes to constructing new data centers. This includes upfront payments and even refunds from tech companies if the build-outs don’t go as planned, according to Meade. “A utility will not want to invest to serve a 1,000-megawatt data center and see 200 megawatts show up,” he says.