All eyes are on Pennsylvania and PJM.
In the span of a week, we’ve seen both the promise and peril associated with the rapid scaling of AI infrastructure, particularly in the mid-Atlantic. Pennsylvania looks to be a leader in powering data centers, while PJM’s latest auction shows just how outdated our current model is — both for interconnecting generation and load to the grid, and for pricing capacity.
Last week’s Pennsylvania Energy and Innovation Summit delivered on its promise of bringing all the key players in the AI-energy nexus together and giving them a platform. They made commitments to spend lavishly (around $92 billion announced), and use their political power to cut through any red tape standing in the way of infrastructure development — while making it clear that fossil fuel would be treated preferentially as a resource.
It even had the whiff of a bipartisan embrace, with Republican Senator Dave McCormick and Democratic Governor Josh Shapiro both present to talk economic development, AI leadership, and jobs.
The announcements were impressive. Blackstone said it would spend $25 billion on digital and energy infrastructure in Pennsylvania, in partnership with PPL. Brookfield will provide Google with 670 MW of clean power in a 20-year, $3 billion deal that will repower two hydro facilities. Constellation committed to spending $2.4 billion to update the Limerick nuclear power plant, while First Energy said it will spend $15 billion to expand its power infrastructure across 56 Pennsylvania counties. Westinghouse pledged to build 10 new nuclear plants, and to start construction by 2030. And Enbridge, Frontier, Equinor, and Capital Power all committed to developing natural gas infrastructure to power data centers.
But like every announcement in the AI infrastructure space of late, it’s difficult to square these with hyperscalers’ commitments to operate their data centers on zero-carbon power, and the public’s interest in limiting the impacts of data center developments on retail electric rates.
The PJM auction
Tuesday’s PJM auction offers stark evidence that data centers will continue to push up capacity prices, which will inevitably trickle down to electric rates. The auction closed at the $329 per megawatt-day (MWd) price cap, indicating that without the cap, it would have gone even higher: likely up to $388 per MWd. This closing price is a 22% increase over last year’s auction, which was itself a record.
Data center demand was called out as a key driver of this year’s auction, so the direct link between AI infrastructure and rates is now well established. All indications point to similar results in the next capacity auction, as supply remains constrained and demand continues to grow.
This is good news for merchant power operators, but bad news for consumers, who PJM itself believes will see rate increases from 1% to 5.5% as a result. Tariffs, the increasing price of natural gas due to the reopening of LNG exports, and higher-priced generation and distribution equipment are all combining to drive up price forecasts as well.
And what of emissions? Brookfield’s deal with Google appears on its face to be following through on pledges to adopt zero-carbon power, but analysts quickly pointed out that by delivering this power directly to Google, the rest of the grid will likely have higher emissions.
Nuclear may come to the rescue at some point — Pennsylvania is home to the Crane Clean Energy Center, which Constellation intends to restart soon, as well as four other plants — but the announcements made last week were more aspirational than specific. Trump disparaged wind power in his remarks, and solar was barely mentioned, save for a nod towards community solar developments, which aren’t typically associated with powering AI data centers.
As Pennsylvania goes, so goes the nation?
In a nod to the state’s recent history as a leading source of fracked gas, much of last week’s Pennsylvania summit focused on powering AI with gas. But the PJM interconnection queue is currently comprised of over 80% solar and storage, the fastest and lowest-cost resource to develop today.
Gas plants are major construction projects, and exposed to all manner of development risks, including the price impacts of tariffs, constrained supplies of equipment, skilled workforce, and local permitting that may not be easily swept aside by federal agencies or executive orders.
In the last presidential election, winning Pennsylvania meant winning the nation. This seems equally true for AI: If Pennsylvania ends up being the model for the nation, then expedited permitting of gas and nuclear plant development, increased wholesale prices for power, and suspended or revoked environmental rules alongside massive data center construction will represent the first wave of the AI market.
The key questions for the second wave of the AI market are 1) to what degree the economics of renewables and storage will counter these political forces, and 2) whether affordability will be the issue that will catalyze market reforms across the country.
There are already plenty of calls for PJM to reform, including from a bipartisan group of governors that includes Gov. Shapiro. Problems with both PJM’s leadership and the mechanisms for bringing new generation on the grid, they argue, which has stalled growth and raised costs for consumers. To its credit, PJM has taken a step towards embracing a technological solution with Google for breaking the bottlenecks in the interconnection queue, but more reforms are called for, and how they’re answered will likely be noticed across the country.
Similarly, the unambiguous realities of low-cost solar generation and firming energy storage will continue to pressure data center developers and system operators to embrace these low-emissions options, alongside increasingly sophisticated grid flexibility.
AI data centers are no doubt a real challenge to the electricity system, but despite clear preferences from the administration for natural gas, an operating model that sticks to the original plan from hyperscalers to embrace zero-carbon energy still looks possible — even if Pennsylvania today is being pulled in the opposite direction.
A version of this story was published in the AI-Energy Nexus newsletter on July 23. Subscribe to get pieces like this — plus expert analysis, original reporting, and curated resources — in your inbox every Wednesday.
