DOSSIER

TECH

The boom in data centers and the boom in inflation in energy bills for the average consumer

The rapidly rising cost of electricity in the United States threatens to claim its biggest victim yet: the nation's largest power grid operator.

Federal authorities have begun considering the possibility of splitting up PJM Interconnection, responsible for managing the grid that stretches from the prairies of Illinois to the coast of New Jersey. The expansion of new data centers is putting pressure on the electricity supply in the 13 states served by PJM, driving up prices and fueling a political backlash.

Regulators, state officials, and executives in the electricity sector complain that the organization is taking too long to approve new power plants and generation projects capable of keeping up with the growth in demand.

Even the CEO of PJM stated that the current situation is "not sustainable," arguing that the entity cannot guarantee sufficient energy supply in the future while simultaneously protecting residential consumers from rising tariffs.

One of the largest energy utilities in its area of ​​operation, American Electric Power, even threatened to leave the organization, which could lead to the incorporation of its transmission lines into another nearby regional grid.

The FERC, the country's energy regulatory agency, has called a meeting for July 23 to discuss possible reforms, including changes to the governance of the PJM.

The FERC chair warned last month that the PJM may need to be broken up into smaller, more manageable parts if reforms do not appear feasible. A senior White House official, speaking on condition of anonymity, also stated that a split should be considered if necessary.

The organization's inability to act more quickly, said FERC chair Laura Swett, jeopardizes the United States' leadership in the field of artificial intelligence.

"The PJM is on the front line; it is the laboratory of national and economic security upon which our country can prosper or fail," Swett stated during the organization's annual membership meeting, held on May 12 in Baltimore.

"We now face historically unprecedented demand and the possibility of a historically unprecedented catastrophic failure."

Founded nearly a century ago, PJM Interconnection manages the transmission grid that supplies electricity to 67 million people—almost a fifth of the United States' population.

Its vast territory also houses some of the largest concentrations of new data processing centers in the country, especially a strip in northern Virginia now known as "Data Center Alley." After decades of modest growth, energy demand is skyrocketing.

Prices are following this trajectory. In the first three months of this year, electricity prices in the PJM grid's wholesale market jumped 76% compared to the same period of the previous year, reaching an average of US$136.53 per megawatt-hour. Capacity costs, a mechanism that ensures sufficient energy supply during periods of higher demand, have increased by almost 400%.

The rise in electricity bills is causing political turmoil in the United States on the eve of this year's legislative elections, and officials from different political currents have blamed PJM for part of the problem.

Pennsylvania even threatened to leave the organization. President Donald Trump, accompanied by governors from several states, requested that the PJM hold a special energy auction in which technology companies would finance the construction of new power plants by bidding for 15-year electricity capacity contracts. In response, the PJM stated that it will change the way data centers and suppliers enter into contracts and will anticipate the contracting of new energy supply.

"There is no clear plan from the PJM to simultaneously address tariff affordability and system reliability," said Maryland Governor Wes Moore, considered by some to be a potential Democratic presidential candidate in 2028, at the opening of the PJM's annual meeting in May. "Even if we hadn't foreseen the scale of the phenomenon, data centers are nothing new, and we've known for some time that we would see many more of them."

"The PJM failed to anticipate this," he added.

A representative from PJM stated that the organization generates significant value for the states it serves and will continue working to address supply shortages.

— We understand the states' concerns about tightening electricity supply and increasing demand, which pose challenges to both reliability and tariff affordability — said spokesperson Jeffrey Shields.

— PJM has been warning about these issues for several years and remains committed to working with states and its members to address these common challenges.

Part of the problem lies in PJM's complex and unusual structure. The organization oversees both electricity transmission and the markets and auctions that determine energy prices. Technically, it is a private company, but it operates as a membership association.

Its more than 500 voting members — including utilities and power plant operators — can influence policies through internal committees, although the entity also has a technical team and board of directors that make their own decisions. Frequently, the interests of the participants diverge profoundly: some advocate for the expansion of renewable sources, while others continue to bet on coal.

Its CEO, David Mills, took office just a month ago. In a letter sent to market participants, he described a “credibility gap” between the need for high prices to stimulate the construction of new power plants and the obligation to protect consumers from unsustainable tariffs. According to him, limiting the prices paid by consumers means reducing incentives for the entry of new energy generation.

— My job is to ensure that PJM stops being seen as the punching bag responsible for solving all these problems — Mills stated during the annual meeting. — It will require a collective effort.

One of PJM's main challenges will be reforming the so-called capacity market, a mechanism created to guarantee sufficient energy during the dozens of hours per year when demand peaks and the risk of blackouts increases.

According to a recent report from the independent PJM market monitor, the data center boom added approximately US$23 billion (about R$116 billion) to the cost of this "insurance" for the three-year period ending in mid-2028.

How the PJM will be structured a year from now will depend on the decisions made by the organization and its regulators in the next two months, according to a White House official who spoke on condition of anonymity due to the sensitivity of the issue.

There is even a risk that the network operator will dissolve without federal intervention if American Electric Power (AEP) abandons the organization and other utilities follow suit.

FERC President Laura Swett made it clear in her speech at the PJM annual meeting that profound changes may be necessary.

"We are facing a moment of profound consequences. Personally, I am very willing to act aggressively when the future of the country is at stake," Swett stated.

More pollution...A surge in Australian data centre construction driven by AI risks pushing up power bills and climate pollution, according to a new report from the Climate Council.

The report, Clouded future: Managing risks of the data centre boom, reveals that Australia is already a global investment hotspot – second only to the USA in 2024 – with 162 data centres in operation and more than 90 projects in the pipeline.

 

Unchecked, this growth risks:

↑ 26% wholesale electricity price rise in NSW, and 23% rise in Victoria by 2035 if data centre demand is met with gas, not renewables

↑ 14% more climate pollution from our main electricity grid by 2035 without intervention

3X projected growth in data centre energy demand by 2030 – making their power use equivalent to all Victorian homes – in the midst of the clean energy build out 3X projected growth in water demand by 2030 as our climate is becoming hotter and drier. Water utilities have received single site connection requests to be able to use up to 40 million litres a day (equivalent to 16 Olympic swimming pools).

But proactive, swift Government action can better align data centre growth with Australia’s switch to clean, reliable and affordable energy. Requiring new data centres to match their load with low cost, new renewables and storage will protect Australians from price hikes and pollution surges.

Climate Council CEO Amanda McKenzie said:

“Australia is navigating a dual boom: a critical switch to a clean energy system and a historic surge in digital infrastructure. To protect the Australia of tomorrow, our governments must act today.

“Data centres are hungry for energy. Governments must proactively manage the surging demand, making sure that they are powered with clean renewable power. If they don’t, there is a big risk that they will push up pollution from coal and gas at a time when we’re already living through more frequent floods, and ferocious fires.

“Unchecked construction of data centres would hit Australians in the hip pocket, too, if their high energy demand is met by expensive and polluting gas rather than additional renewables. But, matching new data centre load with low cost, new renewables and storage will protect households, and other businesses from those costs.

“There is an opportunity to align the expansion in datacentres with climate action, and the time for Government action is now.”

Climate Councillor and energy expert, Associate Professor Joel Gilmore, said:

“How we manage this industry will shape our energy system – and climate – for decades to come. Done poorly, data centres threaten to derail our switch to clean energy – which will push up pollution and power prices. With government intervention and enforceable requirements, data centres can play a role in our clean energy shift, support grid reliability, and avoid unnecessary power price rises.

“Data centres are like a giant snowball rolling down the mountain. If they don’t bring new, low-cost renewables and storage with them and pay for the energy and water infrastructure upgrades they need, they’ll be dumping massive costs onto households and businesses.

“These are large, well-resourced corporations who can afford to pay for the clean energy they need. Australian households should not be subsidising big American tech companies – our governments must act swiftly to insist that these companies come to the party with additional renewable energy and storage.’’

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