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A new report questions the effectiveness of the methods state and federal government officials are proposing in response to the data center development boom.
Some of the moves, like temporary moratoriums or “ratepayer protection pledges,” can be misguided or misleading, the centrist think tank Third Way argues in the report, released this week.
“I think [the pledges are] an important step towards acknowledging the problem,” said Third Way tech policy director Ruth Whittaker. “But it’s voluntary. There’s really no teeth to it. There isn’t even really a way to see until we’re pretty far in the future whether it’s going to have any effect.”
> “[The current policy response] is just not enough for voters. They don’t really want to take a lazy approach.”
>
> Ruth Whittaker, Third Way
Though various startups and R&D programs are exploring ways to reduce the massive power demands of the hyperscale facilities planned to serve growing AI and cloud computing use, at existing rates they’re projected to consume more than 8% of US electricity by 2030. Consumers in communities across the country are seeing rising electric bills, some of which may be attributable to the data center buildout.
About 150 state and local legislatures have already approved, considered or rejected a moratorium on building data centers. But a pause in development won’t make a dent in stabilizing consumer electric bills, the Third Way report says. Aging energy grid infrastructure and tariffs are also major contributing factors.
Building AI infrastructure fuels innovations like drug discovery or autonomous drone technology. Those tech developments can help people, and broadly boost economic competitiveness and national security, the report outlines.
The current policy response, Whittaker said, “is just not enough for voters. They don’t really want to take a lazy approach.”
Policymakers should instead look at things like legally requiring data center developers to pay for energy grid updates, the report says, or forcing a mix of energy supply to satisfy demand instead of letting developers build their own off-grid fossil fuel plants.
Looking to other countries for computer power also creates geopolitical concerns, Whitaker said. “It increases the reliance on data center infrastructure located outside the US, and puts pressure on the industry to build elsewhere, which means that we lose out on investment at home.”
Read the report: ‘Electricity Affordability in the Age of AI’
## ‘Ratepayer protection pledges’ are misleading
At this year’s State of the Union address, the president announced what he framed as a new deal with tech companies, wherein data center operators and backers would need to provide for their own power needs.
Later, he released a memo with few details, stating that these companies will “voluntarily negotiate new, separate rate structures … wherever they build data centers.”
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Energy prices are not set by a single authority, and the federal government does not have a direct role in ratepayer pricing — that’s primarily the states’ responsibility. The Federal Energy Regulatory Commission, known as FERC, handles what’s called wholesale pricing (the cost of electricity bought in bulk by power companies directly from power plants, or generators of energy).
It’s also unclear what or how many companies will follow through, since the pledge is not legally binding.
Before this move, Microsoft in January said it’ll work with utilities to set its own higher rates and invest in nuclear energy infrastructure. Oracle, Amazon, Google and Meta have also responded to the announcement and noted they will invest in sources like nuclear, solar, natural gas, hydropower and geothermal energy.
## Energy supply needs to be mixed
Data center developers should be required by law to pay their “fair share” of infrastructure upgrade expenses, Third Way writes. That means funding new wires, transformers and poles.
When companies choose to bring in their own behind-the-meter energy, governments should make sure average customers are benefitting, per the report. When data centers generate their own power, some of that energy should go to the grid for other uses.
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Why? Data centers still rely on the grid for emergency backup, said Francesca Hsieh, deputy director of electricity at Third Way and co-author of the report.
Policymakers should also consider the breadth of energy sources — natural gas, solar, nuclear and others — to meet power demands.
Nuclear is a solution in the long term, Third Way said, with several companies innovating to bring that power online, and increased private investment is signalling to lawmakers that source is a solid option for fueling data centers. Federal agencies are also funneling money to nuclear companies.
“This is a really great way for us to inject money into the innovation space and energy,” tech policy director Whittaker said. “If tech companies are willing to be investing in advanced nuclear technology … we should embrace that. That is a way to keep the energy sector in the 21st century.”
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