America’s data center electricity demand is ballooning, and the grid can’t keep up. Power constraints could delay or block a third of the data centers planned for this year. Meanwhile, meeting demand from both existing data centers that are running full-tilt and those yet to be built threatens higher household electricity bills across the country.
But what if an unexpected solution — clean energy parks — could solve that data center challenge and clean up one of the hardest-to-decarbonize sectors of the economy?
Data centers get the headlines, but another type of large electricity user could deliver immense long-term benefits, from clean air to economic growth: electrified industrial facilities. As more and more data centers are asked to “bring their own power,” energy parks are emerging as a solution that can clean up both data centers and industry.
Like in most other sectors, this will require electrification. Manufacturers burn large quantities of fossil fuels to produce goods like cement, chemicals, and paper, creating a third of greenhouse gas emissions at present, and putting industry on track to become the single highest-emitting sector within a decade.
Electrification can eliminate industrial emissions when powered by clean energy, and it is more efficient, cheaper, and cleaner than alternatives like hydrogen, bioenergy, and carbon capture.
While two-thirds of U.S. industrial process heat can be electrified with today’s technologies, that’s a tall order. Industry pays around five times more for electricity than for gas, meaning electrification usually raises costs even though electricity is used more efficiently. Moreover, large new electricity loads could overburden existing grid infrastructure.
At the same time, gas prices are more volatile. Global gas prices surged at the outset of the war in Iran — up to 50%in Europe — revealing how industry’s reliance on globally traded fossil fuels exposes the sector to unpredictable price spikes. The threat is especially large for energy-intensive industries like chemicals, which itself accounts for 43% of America’s industrial energy use.
Still, with today’s soaring electricity prices and limited electricity supply, industry lacks sufficient incentive to electrify. Data centers, on the other hand, are shelling out large sums of money to secure reliable power now. Although much of that money is going to outdated and volatile energy sources like gas power plants, clean energy parks are emerging as an alternative that won’t strain the grid, spike electricity costs, or exacerbate pollution.
Google, for example, plans to invest $20 billion in clean energy parks over the next five years. “In the last month, the hyperscaler has inked deals with several utilities to power data centers with clean energy and storage, from a deal in Minnesota that includes a massive 30 gigawatt-hour long duration energy storage facility to a deal in Michigan where the data center has committed to providing demand response services.
But the tech giant isn’t alone. Clean energy parks co-locate renewable energy and storage with loads that can draw power flexibly and soak up excess power. In these configurations, industrial loads that need to operate continuously can use thermal batteries, which convert electricity to heat that can be stored for several days and used as needed. And with a grid interconnection, clean energy parks can also sell electricity back to the grid.
This approach could slash the costs of industrial electrification. In a few cases, electrification is already cost-effective or close to it, like industrial processes that can be served by highly efficient heat pumps. But most industrial processes can only reasonably electrify with very low electricity prices. For example, industry needs electricity prices to be under $23 per megawatt-hour to make switching to electricity economical, assuming gas costs industry $5 per million British thermal units and has an 80% combustion efficiency.
Wholesale electricity prices often dip below $23 per MWh in renewables-heavy regions of the U.S., especially during sunny and windy periods. By plugging their facilities into clean energy parks, firms can access those low prices without having to pay for transmission and distribution, and they can even recoup costs by selling excess electricity back to the grid.
Meanwhile, clean energy parks can also boost reliability and cut grid costs at a time when data center loads threaten both.
First, co-locating large loads and cheap renewable generation reduces the risk that new grid assets will increase transmission congestion, energy curtailment, and operating costs. Second, they can serve as dispatchable resources, offering grid operators clean power or grid-balancing services on demand. And at times when the grid’s electricity supply is especially limited, clean energy parks can direct renewable power away from onsite loads and to the grid, while onsite loads burn fuel in backup boilers and furnaces. Even running that backup equipment on fossil fuels would generate less pollution than the grid obtaining electricity from fossil fuels.
Still, tech industry cash alone can’t get clean energy parks off the ground. Electricity market reforms are needed, including new rules that treat clean energy parks as a single resource and allow them to connect to the grid behind a single point. Recent policies are making progress in this area, such as efforts by the Federal Energy Regulatory Commission and Southwest Power Pool to fast-track interconnection of large loads with co-located generation.
But other needed reforms are lagging, like federally standardized models for clean energy parks to participate in wholesale electricity markets. Regulators could also reform rules that currently treat each energy resource as either a sink or source, and instead authorize grid operators to consider clean energy parks on the merits of their flexibility and their net energy production.
Whether new data centers — and the large electricity loads they represent — will deliver the prosperity they promise remains to be seen. But supplying hundreds of megawatts of power to data centers will pay off if that power comes from clean energy parks.
If piloted at scale, clean energy parks can be more than just a tool for data centers; they can become an innovative, plug-and-play solution that tackles the high costs and grid inadequacies standing in the way of industrial electrification. Policymakers and investors should encourage these novel arrangements to pave the way for a clean, globally competitive industrial sector.
Sonali Deshpande is a senior policy analyst at Energy Innovation, working to help regions around the world reduce emissions from the production of goods like steel, textiles, and paper. In addition to helping design and implement real-world policies, she produces foundational research on clean industrial technologies that are not yet well understood, like electric heating equipment. The opinions represented in this contributed article are solely those of the author, and do not reflect the views of Latitude Media or any of its staff.
