The cost of AI: Who pays to power the future?

CATAWBA COUNTY, N.C. — Whether you realize it or not, you likely use AI technology in your everyday life. Through things like home assistants, smart thermostats or social media, a Gallup survey found 99% of Americans US an AI product on a weekly basis.

Tech companies are eager to grow the technology but doing so means they need two things built very quickly, data centers and the energy infrastructure to power them. The question utilities, regulators and customers across the country are asking is who is on the hook to pay for that?

The cost of better, cleaner power

In North Carolina, Duke Energy’s latest long-term plan, as approved by the North Carolina Utilities Commission in 2024, commits to buildings 14 GW of new power generation over the next 10 years. Spokesman Jeff Brooks, explains that includes 8.4 GW to replace retiring coal-fired power plants and 3 GW of new generation to keep up with economic growth.

Broken down further, Brooks explained 1.5 GW of that new generation or enough to power roughly 1.5 million homes, is projected to be used by future data center customers.

“Some of those facilities are, you know, increasing in size,” he said. “You have some that are that are 100 megawatts or less, but you have some that are going to be in the hundreds or even potentially up to a gigawatt in size.”

To meet that demand, Duke Energy plans to build acres of new solar panels and grid battery storage, three to five new natural gas-fired power plants and add new nuclear reactor to the grid by the end of 2035, all while expanding our current transmission infrastructure to get that power to where it’s needed as efficiently as possible. This will cost tens of billions of dollars.

For North Carolina ratepayers, who have already been dealing with high gas and electric bills, Ethan Blumenthal with the North Carolina Sustainable Energy Association said there needs to be protections in place to ensure they don’t get stuck with the bill for all that power, when most of them will only use a fraction of it.

“Those that cause the cost to be brought to the system ought to bear that cost,” he said.

In summary, if a massive customer like a data center is the primary driver of a big infrastructure investment, Blumenthal argues, those customers should pay a premium for that power.

“What’s most important from a North Carolina perspective, is ensuring that rate payers are protected, so that those potential costs do not trickle down and make our power more expensive for no better benefits,” he said.

Do data centers really need that much energy?

Before we get ahead ourselves, deciding who will pay for new power generation, many experts say we still need to resolve the question of whether our grids will even need that much power in the first place.

The Bipartisan Policy Center has been tracking this issue across the country and as, Tanya Das, the director of AI and energy technology policy, explains, while there’s some certainty that we’re going to see energy demand grow nationwide for the first time in decades, the culprit is unclear.

“If you just look at the numbers of how much folks are predicting that data centers will constitute of our electricity load in the future, the numbers are all over the place like it’s anywhere from 6% to 30%,” she said.

We don’t know how much more energy efficient AI technology will get in the next ten years. We don’t know how quickly tech companies will be able to build up these data centers or if they’ll run into supply chain shortages or delays in securing key materials like computing chips. We don’t even know if these data centers will be built, where tech companies say they will.

Das explains, as these companies look to build up their capacity, they’re “shopping around,” looking at various states and locations to site these centers, based on cost of land, current available infrastructure, tax incentives and how quickly they can connect to the local power grid.

To avoid overbuilding for projects that may never come into fruition, Brooks said Duke Energy’s load forecast distinguishes between speculative projects and projects that have already made commitments to build in North Carolina.

“We know some that have moved to the point of letters of agreement and starting to move into identifying locations and facilities, and that triggers certain milestones for us as we begin to do our system planning and long-range planning,” he said.

As for ensuring they pay their fair share, some utilities are developing what are called “minimum take agreements” where they require large customers like data centers to pay for a minimum amount of power, whether they use it or not, to make up for the infrastructure investments required to build up that capacity.

“We can have that sort of guarantee some commitment from that company if they move into that that space,” Brooks said. “In those rare instances where a project gets delayed or maybe doesn’t come to fruition, what we’re seeing in the growing trend is that there’s more behind it that will come in and have that opportunity.”

What happens when a data center comes to your area?

Data centers aren’t new to North Carolina, though some of these proposed projects are far more energy intensive than any existing structures. It begs the question though, if data centers bring so much uncertainty and the need for expensive investment, why not let those companies continue to “shop around” and choose another grid to build their project?

Unlike other large, energy-intensive customers, data centers typically don’t bring many direct jobs to a community. Once they’re built, you likely won’t see much traffic around them. What they do bring, is a lot of tax dollars.

Catawba County’s economic development director said Apple has been one of the largest taxpayers in the region ever since it opened its data center in Maiden, allowing the county to invest in new projects and buildings, without raising tax rates for other locals.

Additionally, Blumenthal argues, with the right policy in place, their massive energy demand can help more, or at least as much, as it hurts.

“There’s a chance that they bring more resources to the grid than would otherwise be brought, and potentially spread the cost of those resources, further making them more economical for North Carolina,” he said. “That very much comes down to who pays and for what?”

Will this cost North Carolina’s clean energy goals?

North Carolina made a bipartisan commitment in 2021 to reduce the carbon emissions in its energy sector by 70% of 2005 levels by 2030 and reach carbon neutrality by 2050. While Duke Energy and state regulators have already determined that 2030 goal is unfeasible, Blumenthal and other advocates for sustainable energy worry demand from data centers will take precedence over these clean energy commitments, eating away at the state’s climate goals.

It’s a trend other states across the country are seeing, as utilities delay coal retirements and call for large natural gas buildouts to increase energy capacity as quickly as possible.

Brooks argues Duke Energy remains committed to the 2050 goal and when asked about coal retirements, he said there were no plans to delay the current schedule. He said the only thing that would stand in the way, is getting replacement generation added to the grid in time.

“We have to serve every customer, and we want to serve them reliably, while also making sure our communities have the reliable power and as lower rates as possible,” he said.

As for whether data centers can move the needle, Das pointed out many of these tech companies have their own sustainability commitments, and often participate in power purchase agreements, where they help pay for the cost of large renewable energy projects.

Ultimately though, data centers demand 24/7 power, which most renewables cannot provide without massive battery storage capacity. That makes natural gas and nuclear attractive options but before utilities commit to massive buildouts, Blumenthal wants to see more negotiation with data centers about how much power they use and when.

“Can you just ramp down, not necessarily turn off your demand, but ramp down your demand for .5% of the time?” He said.

If there’s some built-in flexibility that allows data centers to use slightly less power when our grid is most stressed, that could help stretch the resources we already have further, while helping these data centers come online quicker.

At the end of the day, he said the cheapest and least environmentally taxing watt of power on the grid, is the power that never had to be generated.

“There has to be a give and take,” he said.

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