Coal- and Gas-Fired Power Plants Have a New Best Friend: Data Centers

That law may be changed, due to no subsidies for wind and solar and batteries

However, Dominion has found a useful loophole to get around the law’s requirements — data centers.

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Viriginia hosts the largest data center market in the world, and is home to at least 150 hyperscale data centers, with more being proposed.

In its recent integrated resource plan, Dominion cited projected energy demand from these data centers as a key reason to delay retiring existing power plants, including the Clover Power Station, a coal-powered peaker plant in Halifax County, a disproportionately low-income region.

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In addition to delaying peaker retirements, Dominion has proposed building new CCGT plants, including a 1-GW peaker plant in Chesterfield, a community that already shoulders an undue environmental burden from existing natural gas- and coal-fired generation.

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Similar stories have played out across the country as data centers become more and more ubiquitous, particularly in the Southeast.

Utilities in Virginia, Georgia, North Carolina and South Carolina have proposed building 20,000 MW of new gas power plants by 2040.

Data centers driving the projected load growth are being used to justify this buildout.

In Virginia, Georgia and South Carolina, data centers are responsible for at least 65% of projected load growth.

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Data centers are also delaying the retirement of fossil fuel power plants nationwide, with at least 17 fossil fuel generators originally scheduled for closure now delaying retirement.

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The gas bonanza is especially concerning because the projected demand from data centers could be significantly overblown.

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Many prospective customers will submit speculative interconnection requests, sometimes across multiple states, inflating demand numbers and making accurate projections difficult.

.A study published last year by Lawrence Berkley National Lab highlighted these discrepancies across future demand projections.

The report’s low-end predictions estimate data centers will represent 6.7% of all U.S. energy use by 2028, while the high-end estimate is 12% — a difference of 255 terawatt-hours of energy, equivalent to the energy consumption of over 24 million households.

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Despite the known issue of site speculation, utilities have an incentive to use exaggerated demand claims to justify building new infrastructure, such as Dominion’s massive Chesterfield peaker plant.

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Regulated utilities like Dominion are guaranteed a 9% rate of return for building power plants and can pass the cost of building the power plants on to customers through rate increases.

In many cases, ratepayers are also footing the bill for the necessary transmission upgrades to service these large load customers.

West Virginia ratepayers, for example, will end up paying more than $440 million for two transmission lines destined for data centers in northern Virginia.

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Keeping aging peaker plants online, which provide some of the most expensive energy on the grid (not to mention the most polluting), will also be borne by ratepayers.

Utility bills in several states are expected to increase by $40 to $50 a month due to data center-driven grid investments.

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Utilities in some states have begun exploring ways to mitigate these costs.

As a way to buffer ratepayers from risk, Dominion proposed a new rate class for high energy users such as data centers.

The rate class requires a 14-year contract commitment to pay for requested power, even if the customer ends up using less than requested.

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Ohio utility American Electric Power enacted a similar tariff, requiring large-scale data centers to pay for up to 85% of their projected energy demand each month, as well as requiring data centers to provide proof they are financially viable and able to meet those requirements.

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Possibly in a bid to cut down on speculative interconnection requests, customers will also have to pay an exit fee if the project is canceled.

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These types of regulatory measures are hindered by the nature of data centers themselves, which require 24/7 power and have little appetite for reducing demand during peak periods.

Large tech companies with existing decarbonization pledges have turned to procuring their own carbon-free power to address this.

Microsoft, for example, signed a power purchase agreement last year to restart the nuclear facility at Three Mile Island, a move which prompted backlash from residents.

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Data center pursuit of nuclear power also prompts larger concerns about the impact on the grid.

Nuclear plants delivered almost half of the carbon-free power produced in the U.S. in 2023.