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Meeting the data center power challenge

How electricity grids can be modernized at pace to cope with surging demand

5 minute read

In our first article in this two-part series, we looked at the massive impact AI will have on the growth of data centers, and consequently, on the demand for reliable 24/7 electricity. In this second piece we’ll call on S&C Electric Company’s expertise in grid transformation to look at how utilities and large-load customers can prepare for these changes.

Despite soaring demand, data center growth could be constrained unless grids can be rapidly upgraded to ensure sufficient electricity is available where needed. The IRA has driven well over US$100 billion in clean energy investment already – and barring a significant rolling back of policy there should be more to come. However, despite strong growth in renewable generation, planned retirements of fossil fuel power plants mean overall US grid capacity isn’t growing at anything like the rate required.

As S&C points out, increasing capacity is only part of the story. To ensure the AI revolution can happen, it will be vital to rapidly strengthen and expand access to reliable, resilient electricity supply via effective transmission, distribution and storage. So, what’s needed to make that happen?

Addressing bottlenecks

Permitting and interconnection bottlenecks are a major issue for power hungry facilities such as data centers and can even prevent projects being given the green light. Both the Federal Energy Regulatory Commission (FERC) and individual grid operators have taken steps in the right direction to remove the red tape causing supply chain constraints and interconnection issues. More work will be necessary to streamline processes and alleviate roadblocks that present an obstacle to new interconnections. However, to be effective, such reforms must be developed hand-in-hand with changes to transmission.

Expanding energy storage

The buildout of battery storage that can provide a cost-effective and reliable solution to intermittency issues will be vital as renewable generation begins to dominate the power stack. Grid-scale installations soared in 2024, with 3.4 GW of grid-scale storage installed in the US in Q3 alone – an 80% increase on the same period in 2023. Wood Mackenzie forecasts another 20% increase in 2025, although uncertainty exists in terms of continuing policy support. Increased protectionism is likely to intensify cost and supply chain risk for storage, leading to an increase in overall storage capex costs of around 10%.

Strengthening grid infrastructure

A potentially more difficult challenge will be to strengthen and expand straining transmission and distribution infrastructure to facilitate increases in capacity. S&C estimates that about 70% of US distribution grid infrastructure is more than 50 years old. To manage future demand, utilities need digitized systems that can collect and harness data to make smart decisions on energy management, flexible loads and investment planning. At the same time, grids need to adapt to cope with multidirectional flow from distributed solar systems and battery storage.

Policy therefore needs to be aligned to supporting grid modernization and resilience planning, whether in the form of direct funding, tax incentives or regulatory changes. US$2.2 billion in Federal funds were earmarked for eight grid-related projects across 18 states as part of the Biden administration’s Investing in America agenda. However, as S&C points out, much more will be needed to create a truly modern power network.

A major constraint is the availability of the equipment required to connect large loads. For example, Wood Mackenzie is seeing typical lead times of three years for particularly large transformers above 500 mega-volt amperes (MVA). While manufacturers are investing in additional manufacturing capacity, supply will take years to catch up with demand.

Building resilience

Given data centers’ need for 24/7 power, another important move will be to protect and provide resilience against system outages, including those from severe weather events, which are a growing problem globally. Based on rate cases, regulatory filings and other public announcements, Wood Mackenzie estimates that the US electricity transmission and distribution industry will invest over US$470 billion in reliability improvement projects between 2024 and 2028.

With extreme weather events the main driver for improving resilience, storm hardening and undergrounding make up 55% of reliability improvement activities. However, as S&C explain, underground circuits come with their own operational challenges. Faults always result in outages, which may require multiple truck rolls, with technicians painstakingly investigating each cable section. Automated solutions can mitigate these issues by locating and isolating them and rerouting power almost immediately without human intervention.

S&C estimates that for overhead lines, up to 80% of faults are caused by temporary issues, including vegetation, animals and storms. Replacing overhead fuses with automatic reclosing devices and deploying self-healing technology such as fault interrupters can help reduce outages and increase segmentation to reduce the number of users affected by an issue.

Building partnerships

Utilities and developers/operators of large-scale data centers need to work together, since their relationship is mutually dependent. The immense scale of many data center projects implies a huge commitment on the part of utilities in providing the necessary power. Utilities firms need to know a project will go ahead before investing in the grid upgrades required.

Conversely, project owners need to know that power will be available for when a new facility is ready to go online. Our conversations with utilities indicate that data center operators and developers may be willing to pay for network upgrades, lessening concerns that grid improvements will drive price increases for other users.

Taking control

For data centers, bringing more of the power distribution system under direct control can significantly help with resilience. S&C has seen data center operators increasingly taking ownership not only of medium voltage equipment but equipment at higher voltages right up to the substation that hooks up to transmission.

Equipment and layout can be specifically designed to cope with extreme weather events. Submersible, gasoline insulated switchgear can remain operational even when completely submerged in water. Meanwhile, a campus-style system with a distributed electrical design avoids the possibility of a single point of failure, increasing the probability of at least some electrical equipment surviving severe weather and keeping a center operational.

Treating your data center like a utility

Data centers are increasingly being blamed for a problem known as “bad” harmonics. This is where the normal steady flow of electricity is disrupted by spikes and dips in voltage, resulting in poor power for the surrounding residential load. A dual-purpose data center that uses its inherent backup energy storage capabilities can effectively use the problem as the solution, using its own stored energy to help smooth out frequency and improve harmonics. This represents a real opportunity for data centers to become more sustainable, obviating the need for a separate utility-owned battery system.

Missed the first article in this two-part series? Read it here. 

In partnership with S&C Electric Company

S&C Electric Company provides a range of products and services to address electricity distribution issues and has been working with data center operators for many years.

Find out more about how their solutions can help.