A task force of policymakers, state regulators, local officials and energy experts has spent the past six months developing recommendations for North Carolina to meet rising electrical demand driven by energy-hungry data centers.
The 49-page report released Monday identifies risks and opportunities presented by the number of new data centers eyeing the state. Many of the recommendations mentioned in the report echo the N.C. Utilities Commission’s Large-Load Technical Conference from October.
Stein created the Energy Policy Task Force last year to develop recommendations for regulators and policymakers on how to meet rising energy demand without increasing costs.
The recommendations include designing new large-load tariffs, offering tax breaks and regulatory reforms. A central theme of the report is transparency: There’s a lot that we — including state regulators — don’t know about data centers and their impacts.
Rolling the data dice
Data centers aren’t new to North Carolina; the state already hosts dozens. What is new for the state is the number of new projects requesting service from the state’s largest electrical utility, Duke Energy. Roughly 75% of the energy demand in the utility’s economic pipeline comes from proposed data centers.
That demand comes with certain risks, the report found. If too many data centers connect to the grid without utilities building enough new power sources, then outages could increase. The state already experiences higher-than-average outages — the average North Carolinian loses power for 112 to 168 minutes per year, according to data from the U.S. Energy Information Administration.
Another risk lies in how utilities build new infrastructure. If utilities build new power plants to meet data center demand, it could raise monthly power bills for residents and businesses unless rates and regulations allocate those costs to the data centers.
So, what do North Carolinians stand to gain from taking these risks? Although data centers themselves don’t typically employ many people, they might have an economic ripple effect depending on their purpose. Some businesses rely on fast access to data with minimal delay, such as healthcare, gaming and other media-related enterprises.
The report concludes that if North Carolina gets this right, the data center boom could lower rates for customers, renovate the grid and help the state reach its 2050 climate target.
Following in the footsteps of our neighbors
North Carolina is not alone in its scramble to regulate power demand stemming from the A.I. boom.
“33 utilities across 25 states had adopted large load tariffs,” the report said.
A tariff is a rate plan that specifies what a facility pays and sets certain conditions. For example, a “large load tariff” might apply only to businesses that require 25 megawatts or more of power during peak usage. The tariff would set certain conditions that the customer would need to follow, such as paying a monthly minimum, posting collateral or signing a 15-year contract.
Virginia adopted a large-load tariff that applies to customers requiring more than 25 megawatts. Those facilities must pay 60% of the energy costs they contracted for, and 85% of the distribution and transmission services they requested.
North Carolina regulators could design tariffs that help allocate construction costs, decrease peak energy demand and promote clean energy development. The business might also need to clear certain requirements to even receive the tariff, such as a credit rating threshold and a certain amount of onsite power generation.
Both Duke Energy subsidiaries have voluntary tariffs for large-load customers on the books, though they differ slightly. However, Duke primarily allocates costs and shields other customers from rate hikes by signing Electric Service Agreements with high-demand customers.
“To protect residential customers, our contracts with data centers require these facilities to pay the full costs associated with delivering service to their sites,” said Bill Norton, a Duke Energy spokesperson, in a written statement to WFAE. “Regardless of the tariff structure, they will pay substantial energy bills that more than cover their costs.”
The contracts contain many of the provisions the Energy Policy Task Force describes as recommendations in its report, but lack some of the transparency a uniform tariff might provide.
Additional tariffs might offer more favorable conditions in exchange for some flexibility in demand. For example, if a data center can reduce its energy usage for a few hours during a summer peak, that facility might receive more favorable contract terms.
Another tool the state might consider is offering conditional tax breaks to encourage behaviors like demand flexibility, creating jobs or paying higher salaries.
Climate update
State lawmakers eliminated North Carolina’s interim climate target last year, which means Duke Energy no longer needs to reduce emissions by 70% of 2005 levels by 2030. However, the utility has already made some progress toward this goal. Carbon dioxide emissions from generating electricity have declined by 50%, though this figure does not include emissions from power plants outside North Carolina that serve the state.
The report notes that Duke has forecast energy demand to increase by 16% to 60% over the next 15 years. The lower range is still double what the utility experienced during the last two decades.
“Duke Energy is projecting that [carbon dioxide] emissions will plateau through the mid-2030s rather than continuing to decline,” the report noted. In many scenarios, Duke’s short-term
emissions in the Carolinas would increase as the utility delays coal retirement and adds new natural gas generators to the grid.
What’s next?
The Task Force will spend the next year expanding on its policy recommendations. The group’s Technical Advisory Subcommittee will release its final technical modeling report next month.
Most of the recommendations are directed toward the task force itself to continue fleshing out its proposals. The group also recommends that the state’s Budget Office and other relevant departments assess the fiscal impact of granting tax breaks to data centers.
It also proposes that lawmakers and state environmental regulators develop a plan to monitor data center water and energy use.
Sen. Tim Moffitt, co-chair of the state’s Energy Policy Commission, said that he would consider bringing the report before the commission.
