On-Site Power Production for Data Centers: A Powerful Business Continuity Plan for the United States

Introduction

The United States is experiencing an unprecedented surge in demand for electricity, largely driven by the rapid expansion of data centers, particularly those dedicated to artificial intelligence (AI) ¹. This growth is putting immense pressure on the nation's aging power grid, raising concerns about reliability and the ability to meet future demands ³. U.S. data centers already consumed more than 4% of the nation's total electricity in 2023, and by 2030 that fraction could rise to 9%, according to the Electric Power Research Institute ¹. In this context, on-site power production for data centers emerges as a powerful business continuity plan, offering increased resilience, reduced reliance on the grid, and potential cost savings ⁴. This report explores the current state of power grid reliability in the United States, the challenges faced by data centers due to power outages, the benefits of on-site power production, different on-site power generation technologies, and the potential for a more decentralized and resilient power grid in the United States. It also examines the growing trend of "coopetition," where data center competitors are collaborating to educate stakeholders about the value of the data center industry and advocate for policies that support its growth ⁶.

Power Grid Reliability and Challenges for Data Centers

The reliability of the U.S. power grid is a critical concern, especially for energy-intensive data centers. While the average U.S. customer experiences relatively few power outages, data centers are particularly vulnerable to disruptions due to their continuous operation and high energy demands ⁷. Power outages can lead to significant financial losses, equipment damage, and service disruptions for data center operators ⁹.

Several factors contribute to power grid instability and the challenges faced by data centers:

• Aging Infrastructure: The U.S. power grid is aging, with some components nearing the end of their lifespan. This increases the risk of failures and outages, especially during periods of high demand or extreme weather events ¹⁰.
• Increased Demand: The rapid growth of data centers, coupled with increased electrification in other sectors, is pushing the grid to its limits. This can lead to power shortages and increased costs for data center operators ¹¹.
• Extreme Weather Events: Climate change is contributing to more frequent and severe weather events, such as hurricanes, floods, and wildfires, which can damage power infrastructure and cause widespread outages ¹².
• Cyberattacks: Data centers are increasingly vulnerable to cyberattacks, which can disrupt operations and cause significant downtime ⁸.

These challenges highlight the need for robust business continuity plans that ensure uninterrupted operation even during power grid disruptions. On-site power production offers a viable solution to mitigate these risks and ensure data center resilience.

Benefits of On-Site Power Production for Data Centers

On-site power production provides numerous benefits for data centers, including:

• Increased Reliability: By generating power on-site, data centers reduce their dependence on the grid and minimize the risk of outages. This ensures continuous operation and reduces the potential for financial losses and service disruptions ⁶. Data center leaders told Bloom Energy they expected approximately 30% of all sites to use some onsite power as a primary energy source supplemental to the grid by 2030 ¹³.
• Reduced Reliance on the Grid: On-site power production allows data centers to operate independently of the grid, providing a reliable power source even during grid outages or instability ⁴.
• Potential Cost Savings: Depending on the chosen technology and local energy prices, on-site power production can lead to cost savings compared to relying solely on grid power. This is particularly relevant in areas with high energy costs or volatile electricity prices ⁴.
• Enhanced Sustainability: On-site power production can contribute to sustainability goals by utilizing renewable energy sources, such as solar or wind power, reducing reliance on fossil fuels and lowering carbon emissions ⁶.
• Faster Deployment: On-site power generation can be deployed faster than waiting for grid upgrades or new transmission lines, enabling data centers to come online more quickly ⁶. This is becoming increasingly important as data center operators prioritize factors like time-to-power and the ability to support demanding AI workloads ¹³.

In addition to these benefits, on-site power production allows data centers to make a strategic "make-or-buy" decision regarding their electricity supply ¹⁴. By generating power on-site, they gain greater control over their energy source, reduce reliance on external factors, and potentially mitigate risks associated with grid instability or price volatility. However, this decision involves considering various factors, such as upfront investment costs, operational complexities, and the need for specialized expertise in power generation.

On-Site Power Generation Technologies

Various technologies are available for on-site power generation in data centers, each with its advantages and disadvantages:

• Fuel Cells: Fuel cells convert fuel, such as natural gas or hydrogen, into electricity through an electrochemical process. They offer high efficiency, low emissions, and can operate on various fuels, including renewable sources like biogas ⁶. Fuel cells are gaining popularity in data center projects because they are quick to deploy and produce fewer emissions and less pollution than natural gas-fired turbines ¹³.
• Gas Turbines: Gas turbines are a proven technology for power generation, offering high efficiency and the ability to operate on natural gas or other fuels. However, they can have higher emissions compared to fuel cells ¹⁶. Combined-cycle gas turbines (CCGT) are primarily being used in large AI training data centers that require 500 MW or more capacity ¹³.
• Reciprocating Engines: Reciprocating engines, often fueled by natural gas or diesel, are another option for on-site power generation. They are generally less efficient than gas turbines but can be more cost-effective for smaller installations ¹³. Smaller inferencing data centers – focused on the application of trained models – are more often relying on simple cycle turbines, sometimes paired with batteries ¹³.
• Solar Power: Solar panels convert sunlight into electricity, offering a clean and renewable energy source. However, solar power is intermittent and requires energy storage to ensure continuous operation ¹⁷. While rooftop solar is a popular option for on-site renewable energy generation, its fluctuating nature can pose challenges for maintaining a consistent power supply ¹⁸.
• Wind Power: Wind turbines harness wind energy to generate electricity. Like solar power, wind power is intermittent and requires energy storage ¹⁷.
• Combined Heat and Power (CHP): CHP systems generate both electricity and heat, increasing overall efficiency. This can be particularly beneficial for data centers, which require significant cooling ¹⁵.

The choice of technology depends on various factors, including the size of the data center, energy demands, fuel availability, environmental considerations, and cost. In addition to these established technologies, data center operators are exploring emerging alternatives, such as small modular reactors (SMRs) and hydrogen fuel cells, to address the growing demand for sustainable and reliable power ¹⁸.

Furthermore, there has been a renewed interest in fossil fuels, particularly natural gas, as a short-term solution for data center power due to concerns about the reliability of renewable energy ¹⁹. This trend is driven by the need to ensure uninterrupted operation and meet the increasing power demands of data centers, especially those dedicated to AI. Pipeline companies are playing a significant role in facilitating this trend, with companies like Kinder Morgan and Williams Co. reporting increased demand for natural gas to power data centers ²⁰.

Examples of Data Centers Using On-Site Power Production

Several data centers in the United States are already utilizing on-site power production:

• Iron Mountain: In 2019, Iron Mountain built a 7.2-megawatt solar energy array on the roof of its data center in Edison, New Jersey, demonstrating a commitment to sustainability and renewable energy ⁴.
• Intel, Google, and Switch: These companies are also using solar energy at their data center facilities ⁴.
• Meta: Entergy agreed to power a Meta data center in Louisiana by constructing three combined-cycle natural gas-powered combustion turbines ¹⁹.
• Microsoft and G42: These companies revealed plans for a data center in Kenya powered by the Olkaria geothermal plant ¹⁹.

These examples highlight the growing trend of data centers adopting on-site power production to ensure reliability, reduce costs, and enhance sustainability. They also showcase the diversity of approaches being taken, with companies utilizing various technologies and fuel sources to meet their specific needs and goals.

Decentralized Power Grids and Increased Resilience

On-site power production for data centers contributes to a more decentralized power grid in the United States. This decentralization offers several advantages:

• Increased Resilience: A decentralized grid is less vulnerable to widespread outages caused by failures in centralized power plants or transmission lines. With multiple distributed generation sources, the impact of any single failure is minimized ²¹. Distributed generation enhances resilience by allowing individual systems to operate independently, even if a portion of the grid is disrupted ²².
• Reduced Transmission Losses: Generating power closer to the point of consumption reduces energy losses that occur during transmission over long distances ²¹.
• Enhanced Grid Stability: Distributed generation can help stabilize the grid by providing localized power and reducing reliance on centralized sources ²³.
• Increased Use of Renewable Energy: Decentralized grids facilitate the integration of renewable energy sources, such as solar and wind power, which are often located closer to the point of consumption ²⁴.

The increasing decentralization of the grid requires grid operators to adapt their management strategies to ensure continued stability and reliability ²⁵. Data centers, with their ability to generate power on-site and potentially participate in demand response programs, can play a crucial role in this evolving landscape.

Government Policies and Incentives

Government policies and incentives can play a crucial role in encouraging the adoption of on-site power production for data centers. These include:

• Tax Credits and Incentives: Offering tax credits or financial incentives for investments in on-site power generation technologies, particularly renewable energy sources, can make these projects more financially attractive ²¹.
• Streamlined Permitting Processes: Simplifying the permitting process for on-site power generation can reduce barriers to entry and encourage faster deployment ⁶.
• Net Metering and Feed-in Tariffs: Net metering allows data centers to sell excess electricity generated on-site back to the grid, creating an economic incentive for on-site power production ²¹. Feed-in tariffs offer fixed payments for renewable energy fed into the grid, further encouraging investment in these technologies.
• Renewable Portfolio Standards: Requiring a certain percentage of electricity to come from renewable sources can encourage data centers to invest in on-site renewable energy generation ².
• Expedited Approvals: President Trump's plan to expedite power plant development for co-located data centers using emergency powers highlights the potential for government action to accelerate the adoption of on-site power production ²⁶.

Data Centers and Grid Optimization

Data centers are not only large consumers of electricity but also have the potential to become active participants in grid optimization. Their ability to generate power on-site and adjust their energy consumption based on grid conditions can contribute to a more stable and efficient power system.

• Demand Response: Data centers can participate in demand response programs, where they reduce their electricity consumption during periods of peak demand or grid stress ²². This helps balance the grid, reduce the need for expensive peak power plants, and lower overall energy costs.
• Supporting the Clean Energy Transition: Data centers are increasingly supporting the clean energy economy by contracting with renewable energy resources and innovating around efficiency ²⁷. Their commitment to renewable energy and their potential to provide demand response services can accelerate the transition to a more sustainable energy system.

Environmental Impact and Renewable Energy

The environmental impact of on-site power generation depends on the chosen technology. While fossil fuel-based technologies can contribute to greenhouse gas emissions, renewable energy sources like solar and wind power offer a cleaner alternative ². Data centers can minimize their environmental footprint by prioritizing renewable energy sources for on-site power production and implementing energy efficiency measures.

Renewable energy offers numerous environmental benefits, including:

• Reduced Reliance on Fossil Fuels: By utilizing renewable energy sources, data centers can reduce their dependence on fossil fuels, which are a major contributor to climate change and air pollution ²⁸.
• Cleaner Air and Water: Renewable energy sources produce little to no air or water pollution, contributing to a healthier environment and reducing the risk of respiratory and cardiac health issues associated with fossil fuel emissions ²⁸.
• Reduced Waste: Some renewable energy technologies, such as biomass, can utilize waste materials as fuel, reducing the amount of waste sent to landfills and minimizing environmental contamination ²⁸.

National Advantages of On-Site Power Production

Promoting on-site power production for data centers in the United States offers several national advantages:

• Economic Benefits: On-site power production can create jobs in manufacturing, installation, and maintenance of power generation technologies. It can also stimulate economic growth by providing a reliable and cost-effective energy source for data centers, which are crucial for the digital economy.
• Environmental Benefits: By prioritizing renewable energy sources for on-site power production, the United States can reduce its reliance on fossil fuels, lower greenhouse gas emissions, and contribute to a cleaner environment.
• National Security Benefits: On-site power production enhances the resilience of critical infrastructure, such as data centers, reducing vulnerability to grid disruptions caused by natural disasters, cyberattacks, or other threats. This strengthens national security by ensuring the continued operation of essential digital services.

Conclusion

On-site power production is a crucial business continuity plan for data centers in the United States, especially with the increasing demand from AI and the challenges facing the power grid. By generating power on-site, data centers can ensure reliability, reduce reliance on the grid, and potentially achieve cost savings. Furthermore, on-site power production contributes to a more decentralized and resilient power grid, enhancing the overall stability and sustainability of the U.S. energy system. Government policies and incentives can further encourage the adoption of on-site power generation, particularly from renewable energy sources, paving the way for a more sustainable and resilient future for data centers in the United States.

The growth of data centers, the reliability of the power grid, and the transition to renewable energy are interconnected challenges that require innovative solutions. On-site power production offers a viable pathway to address these challenges, ensuring the continued growth of the digital economy while minimizing environmental impact. Data centers have the potential to become active participants in grid optimization, contributing to a more stable, efficient, and sustainable energy future. Continued research and development of new technologies and policies are essential to support the growing energy demands of data centers while minimizing environmental impact and maximizing the national benefits of this approach.

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