Editor’s note: Justin Tomljanovic is the VP of corporate development at Xcel Energy, a utility whose territory spans eight states in the middle of the country: Colorado, the Dakotas, Michigan, Minnesota, New Mexico, Texas, and Wisconsin. He spoke with reporter Maeve Allsup at a virtual event hosted by Buoyant Ventures, in which Xcel is a Limited Partner.
The balance between meeting decarbonization goals and coming out on top in the global artificial intelligence race is as precarious as ever. In the last few weeks, several of the world’s largest tech companies have outlined the detrimental effect of their AI advances on energy use and greenhouse gas emissions.
It’s not yet clear exactly how much load growth the AI boom will ultimately cause, much less how soon the load will grow. But as utilities grapple with how to mitigate and prepare for it, the hyperscalers themselves may be the most reliable sources of first-of-a-kind capital to prove out potential innovations.
Justin Tomljanovic, VP of corporate development at the utility Xcel Energy, said that there’s an increased focus in the utility sector on scaling new technologies more quickly — particularly those that might help utilities meet the onslaught of load growth.
“We could wait until the technology is commercial, and learn from others, but that may take years,” Tomljanovic said. “[In-house] demonstrations are getting the data in real time, therefore our resource planning teams can go take it and figure out how to put that into a solution versus having a delay.”
Of course, there’s a lot of risk (and cost) that comes with deploying large-scale projects that feature unproven technology.
Traditionally, Tomljanovic added, that risk is taken on by either a utility or by customers. But the arrival of federal funding and increased interest from the private sector has begun to shake up that dynamic.
Xcel’s commercial-scale deployments of 100-hour battery systems in California and Minnesota were largely de-risked by funding from the Department of Energy, for example. Both of those projects, sited at retiring coal plants and expected to come online as early as next year, feature Form Energy’s iron-air battery.
Though long-duration energy storage is in the process of scaling, the technology is still unproven at scale. This is in part because electricity markets don’t account for the technology’s benefits to the grid — even when utilities could use clean firm resources and storage more than ever.
But the data center boom, Tomljanovic said, is creating a way for utilities to buy down the initial cost of new energy sources as they head toward commercialization.
This is a familiar role for the tech giants that have already thrown massive amounts of capital at emerging climate technologies like carbon removal in an attempt to help industries get off the ground.
The promise of a new tariff
Frameworks for utilities and hyperscalers to share development costs, like the one Google unveiled last month with NV Energy and geothermal company Fervo, may be the “secret sauce” to balancing decarbonization goals with load growth, Tomljanovic said. Under the so-called clean transition tariff, or CTT, large energy customers could work directly with utilities and developers of emerging technologies like geothermal on a long-term funding agreement. In exchange for that investment, the company would have access to credits against the value of the resulting power.
According to Tomljanovic, utilities and data centers are beginning to explore how they can all go in on a new technology together. That type of partnership and guaranteed offtake, even at a premium, he added, can also serve to expedite the traditionally lengthy utility deployment process.
“We’re looking at the time horizons of these technologies, and I think data centers have an opportunity to help us de-risk, where it’s a bit of a win-win,” Tomljanovic said.
In some ways, he added, those partnerships with the very companies responsible for the potentially crushing amount of near-term load growth may be more reliable in the long-term than other de-risking pathways, like federal FOAK funding.
“[With] this election coming up there’s a lot of question marks,” he said. But one thing that is unlikely to change: the fact that corporate decarbonization goals have longer timelines than election cycles do, which makes big tech companies potentially committed partners.
“There’s a lot of opportunity there, because if they want to commit to 20 years and we want to be there, that’s the recipe for being successful,” Tomljanovic added.
