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The explosive growth of artificial intelligence (AI) has dominated energy industry headlines as of late, and one obvious sector paying especially close attention is the data center industry itself. The repercussions of the AI revolution, both real and perceived, are far-reaching. But, not so obviously, much of the focus has centered around the data center energy demands that are pushing our grid infrastructure to new limits. And with data centers projected to consume up to 9% of all U.S. electricity by the end of the decade, there’s an urgent need for strategic energy planning to offset the rise of AI applications.
The trend in data center construction has been historically driven by the need for proximity to end-users, availability of communications and power, and favorable workforce and tax conditions. Current under-construction activity for data centers in primary U.S. markets reached a record high of 3.9 GW in the first half of 2024, which is a year-over-year increase of 69%. As a result of this growth, data center operators are also looking beyond the usual primary markets like Northern Virginia, Phoenix, Dallas-Fort Worth and Silicon Valley, to name a few. But many communities are increasingly resistant to new data centers, fearing they’ll drain local power supplies and create blackouts or skyrocketing costs.
Data centers require significant infrastructure to maintain constant energy flow, and the cost and time required to build new power plants or expand transmission capacity has surged. But communities and energy providers struggle to justify the resource commitment and high price tag of serving data centers and their draw on the electricity supply.
And therein lies my point. While many believe the challenge is a lack of baseload power to serve these large loads, the reality is more nuanced. The grid is only facing a shortage of electricity from the grid for around 500 hours annually—roughly 6% of the year. In most markets, those 500 hours constitute 20-25% of the peak demand. But with downtime costing an average of more than $7,500 per minute, maintaining grid reliability is paramount to finding sufficient power and reserves for those critical 500 hours. This is the true challenge for data centers and the utility companies that serve them.
It’s not a lack of baseload power; it’s about covering peak demand in all conditions
While they usually spur economic growth and tax receipts, power-hungry data centers can also be seen as liabilities that require extra infrastructure investment. Transmission systems are notoriously challenging to expand, and building large-scale power plants to meet these peak load conditions is costly. But what if, instead of being viewed as burdens on the grid, data centers could be transformed into energy assets that are more flexible in their peak period power consumption, alleviate strain on the grid while reducing costs, and accelerate development timelines? This is where decentralized power generation that only operates during those peak hours can provide a reliable, cost-effective solution.
Solving the data center power puzzle
Dispatchable microgrids, particularly those powered by the abundant supply of natural gas, offer a viable solution to this grid challenge. Natural gas is far cleaner than diesel, which is traditionally used for backup power generation in data centers. With microgrids like these in place, data centers can meet both their onsite resiliency needs and support peak power demands without adding strain to the grid or driving up emissions as they expand. In fact, natural gas microgrids can do more than just serve data centers—they can export surplus energy back to the grid, becoming “good grid citizens” rather than grid liabilities.
Clean, onsite power generation means data centers can also navigate the long wait times associated with traditional utility connections. Building a large power plant or reinforcing the grid can take years, but microgrids can be deployed much faster and grow with the data center’s own expansion plans, allowing operations to come online more quickly and at a lower cost. That kind of responsiveness is crucial in the fast-moving AI arms race, where speed to market can be a competitive advantage.
Beyond flexibility, natural gas microgrids offer a risk mitigation strategy for both utilities and data centers. Environmental groups are obviously wary of constructing more large-scale fossil-fueled power plants and investing in massive infrastructure projects only to find that demand doesn’t meet expectations, which is a costly mistake that utilities have made before. Microgrids, on the other hand, offer a lower-emission, scalable solution that can be installed coincident with actual demand, avoiding the guesswork of whether future loads will justify the investment. Additionally, by self-supplying power onsite, data centers free up transmission capacity for renewable energy projects like wind and solar. This prevents renewable developers from being “boxed out” by large, centralized power plants that monopolize transmission resources.
Powering a smarter, cleaner future for our digital landscape
No matter how we look at it, the future of AI and power infrastructure are increasingly intertwined. AI-driven data centers demand a resilient energy supply and natural gas microgrids, which can already use renewable fuels and hydrogen blends, stand at the forefront of innovation. By adopting flexible microgrid technology as a cornerstone of their resiliency strategy, data centers can achieve speedy access to reliable power and evolve from energy consumers into active contributors to the grid. This not only addresses immediate energy challenges but also creates a sustainable pathway toward integrating renewable energy while ensuring AI’s growth aligns with a cleaner, smarter energy future.
This article was originally published on Forbes.com.
