Regulations Are Making It Harder To Meet the Nation's Power Demands

The Federal Energy Regulatory Commission (FERC) recently rejected a request to increase power generation for a data center located next to a nuclear power plant in Pennsylvania. The U.S. will need to rapidly scale up power generation to meet future demand from AI and large data centers. This decision shows how challenging this task will be.  

In March 2024, Talen Energy sold its 960-megawatt (MW) data center to Amazon Web Services (AWS) for $650 million. The data center is a co-located facility, meaning it will draw electricity directly from Susquehanna Steam Electric Station—a nuclear power plant that generates 2.5 gigawatts of power annually—rather than from the grid. 

Under the agreement between Talen and Amazon, AWS must adhere to contractual power commitments that were slated to increase in 120 MW increments over the next few years, eventually reaching 960 MW. In June, PJM Interconnection, the organization that oversees wholesale electricity markets in Pennsylvania and 12 other states, filed a request with FERC to allow the nuclear power plant and local utility to increase the amount of electricity going to the data center from 300 MW to 480 MW. 

The proposal was denied for being too vague and failing to demonstrate why 300 MW is inadequate to meet AWS' needs. FERC's decision does not void the agreement between AWS and Talen. Instead, it limits the amount of electricity that Susquehanna Steam Electric Station can provide to AWS' data center to 300 MW until federal regulators decide otherwise. 

Travis Fisher, director of energy and environmental policy studies at the Cato Institute, tells Reason that FERC made the right decision. As Fisher and other opponents of the measure see it, approving the request would have allowed AWS to draw more electricity from the grid without paying for it. This could incentivize more co-located facilities to do the same. 

Co-located facilities have received support from some utilities and industry experts who contend that they can bring generation to large-load customers, such as data centers, more quickly than through the standard regulatory process. And, because additional transmission doesn't need to be built—the cost of which gets passed on to consumers through higher rates—co-location facilities can lead to cost savings for ratepayers. 

FERC's decision will not likely impact big tech's interest in nuclear power to meet the energy needs of data centers. "The power-hungry demand from big tech is still there and likely growing. FERC's decision narrows the contractual options slightly, but even co-location is still on the table if co-located loads are willing to pay for network transmission service," Fisher says. 

While co-locating facilities can be an innovative solution to expedite new generation, the real issue that needs to be addressed is reforming the country's burdensome permitting process, Kent Chandler, a resident senior fellow in energy and environmental policy at the R Street Institute, tells Reason. 

The interconnection queue, which is the backlog of energy projects that are seeking approval to connect to the grid, has increased "eight-fold over the last decade, and is now more than twice the total installed capacity of the existing U.S. power plant fleet," according to the Lawrence Berkeley National Laboratory. 

Developers also face a rigmarole of state and federal environmental reviews, restrictive regulations, and NIMBYism that make it nearly impossible to build projects on time and within budget. For instance, the 550-mile SunZia transmission project, first proposed in 2006, only broke ground last year and is expected to start commercial operation in 2025.  

A second Trump administration, which will likely strike down the Environmental Protection Agency's greenhouse gas rule for power plants and roll back parts of the Inflation Reduction Act "will improve grid reliability, make wholesale markets more efficient, and keep costs in check for consumers, all of which will make FERC's job easier," says Fisher. 

Still, absent a comprehensive permitting reform bill that shrinks the role of the federal government, developers in the U.S. will be unable to rapidly build out power generation to meet future demand. 

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