For more than two decades, electricity demand in the United States has stayed roughly flat, but that is about to change, due in no small part to the proliferation of data centers that power artificial intelligence. By one estimate, U.S. power demand is set to grow by 25 percent by the end of this decade. Utilities are racing to build new gas power plants, while tech companies, keen to ensure a continuous supply of power, are installing gas turbines alongside data centers. The rush to meet rising demand with natural gas is driving up electricity bills and emissions.
But a growing chorus of experts is now arguing that there is a better way, and regulators are taking notice. Rather than installing new gas turbines, these experts say, data centers should curtail their electricity use at peak hours, either by ramping down operations during those times or by drawing energy from batteries on site.
Among those arguing for this approach is Jigar Shah, a managing director at Multiplier, a clean tech consultancy, and former head of the Loan Programs Office in the U.S. Department of Energy. In an interview with Yale Environment 360, he talks about how he sees an opportunity to strengthen the power grid, trim electric bills, and help curb emissions by outfitting data centers with batteries.
Jigar Shah. Tony Powell
Yale Environment 360: There’s been a rush to build new gas plants alongside data centers, but you’ve been critical of that approach. Why?
Jigar Shah: I would suggest that it’s not cost-effective. During most of the year, our grid has a lot of excess capacity. The peak demand in the United States is generally less than 800 gigawatts. The average demand on our grid most of the year is about 400 to 450 gigawatts. So most of the time you’ve got 200 to 300 gigawatts of spare capacity in the grid. That’s more than enough to meet all the data center growth and EV growth and new manufacturing and all the things we’re doing in our country.
But between 10 and 20 hours a year, it’s not enough. Generally speaking, those 10 or 20 hours are driven by weather. It’s either a heat dome that comes through unexpectedly, or a polar vortex that comes through. Part of that is because we have such a large amount of housing stock in the United States that are not weatherized, and so when things are particularly hot or particularly cold, it’s very hard for these air conditioning or heating systems to keep up.
Now, you can meet those hours with behind-the-meter, off-grid power generation. If you do it with [small, inefficient] natural gas plants, the cost of producing power can easily be $100 per megawatt-hour. That means that the rest of the time, you’re pulling from the grid, because the grid is way cheaper.
You can also add capacity with batteries, but what’s interesting about batteries is that when you add capacity with batteries, you can use them every day to help the grid. And that actually pays you.
e360: You “get paid” by charging your batteries when prices are low and selling the power back to the grid when demand spikes?
Shah: There are many different ways to get paid for the battery. One way is to buy [electricity] low and sell high. In the [Mid-Atlantic] transmission system, they will pay you capacity payments for those batteries.
No one pays you for the capacity of your natural gas plant behind the fence, but you can get paid for those batteries. The batteries actually might pay themselves back over 15 years. The natural gas plants most certainly will not pay themselves back over 15 years.
“By putting in batteries [at data centers], you’re actually lowering everyone else’s electricity bill, because you’re adding capacity.”
The other big thing here in this moment is that politically there’s a feeling that the data centers are actually raising everybody’s electricity bills. By putting in batteries [at data centers], you’re actually lowering everyone else’s electricity bill, because you’re adding capacity that can be used the rest of the year to help reduce volatility on the grid for everybody else. That could lead to a 5 percent reduction in bills for everybody. Adding behind-the-meter natural gas plants [that are not connected to the grid] doesn’t reduce bills for your neighbors.
e360: Currently, electricity prices are rising. What’s going on?
Shah: The traditional way that we run our grid is that we monitor demand. We turn on generators to meet that demand and then transport that power via transmission and distribution lines in real time to meet that demand. So if demand goes up, you have to build more [power plants]; you have to upgrade the transmission; and then upgrade the distribution to meet that increased demand. The Edison Electric Institute is estimating that that process will require $1.1 trillion of new investment between 2025 and 2029 from the nation’s investor-owned utilities.
About half of that money is used for maintenance because we have old stuff, so stuff wears out and needs to be replaced. And about half that money is for growth, so that’s around $550 billion that’s required for growth. The reason why batteries and demand flexibility is such a large focus for people is that you could accomplish those same [growth] outcomes for one-tenth the cost.
Gas turbines being installed at the Stargate A.I. data center in Abilene, Texas, in September. Kyle Grillot / Bloomberg via Getty Images
e360: If batteries are the better option for data centers and the grid, what is spurring the rush to gas?
Shah: I think it’s a very complicated concept to understand. Remember, the vast majority of data center investors think about things in crude terms. Their job is to be experts in buying [computer] chips, building data centers, and then making sure that those data centers come online. So for them, they believe, “Well, if you’re not going to supply me power 24/7, I have to supply my own power 24/7.”
But most natural gas plants do not like to run more than about 50 percent of the time. So that means that if you want 24/7 power, you need to buy two units, one to back up the other one. Even if you were to build a nuclear plant next to your facility, nuclear plants only run 92 percent of the time, so the other 8 percent of the time, you need the grid to back it up, which is easy to do, to be clear.
Integrating into the grid system is a far more cost-effective thing to do than to go alone [with your own power generators]. But right now, there’s a big go-alone movement because it feels very macho.
e360: There has been a lot of consternation about the way that data centers could make it harder to keep emissions in check. Could batteries help by storing surplus wind or solar power?
Shah: To decarbonize our energy system, we will have to feature storage. All of the batteries being deployed will be integrated into this future system.
“I think if [tech companies] continue to focus only on their needs to turn their data centers on quickly, they might lose public support.”
e360: There is an argument that, instead of adding gas turbines or batteries, data centers should just pay to reduce demand elsewhere. That could also help lower emissions.
Shah: You could imagine it being cheaper to actually weatherize a number of [nearby] homes. So that during those peak [heating and cooling] periods, those homes can hold their heat or cooling a lot easier. It might be cheaper to weatherize those homes than to put in batteries at your data center.
e360: There has been so much backlash to data centers burning natural gas. The idea that, instead of installing gas turbines, data centers would pay for their neighbors to weatherize their homes would, it seems, be a win-win.
Shah: At the end of the day, these people need public permission. Google was forced to withdraw a petition to put a data center in Indianapolis. Microsoft was forced to withdraw [plans for a data center in Wisconsin] recently too. So you’re starting to lose public permission. Figuring out how to gain that permission I think is also something the data centers have to solve. I think if they continue to be focused only on their own selfish needs to turn their data centers on quickly, they might lose public support.
e360: In terms of rolling out batteries, how much does it matter that the Trump administration has gutted tax credits for clean energy?
Shah: The [Republican spending bill] accelerated the phase-out of solar and wind credits, electric vehicle credits, and some of the home electrification credits, but a lot of the rest of the credits they’ve left in place. They maintained battery incentives until 2034.
e360: What should state and local leaders be thinking about right now?
Shah: Well, I think it’s important to note that the vast majority of our governors who care deeply about affordability of electricity right now don’t know the difference between DC power and AC power or transmission and distribution. And so in this moment, I think it’s incumbent upon all of us [in the energy field] to help all of our decision-makers get up to speed on these important topics.