Managing the Growing Energy Demands of Datacenters and Crypto Mining

Current projections for the growing energy demands of data centers and proof-of-work cryptocurrency mining threaten to keep fossil fuel-burning power plants online, disrupting our transition to clean energy and potentially rolling back our progress retiring fossil fuels.

These enormous facilities run 24-hours a day, requiring massive amounts of energy to power both the computers and their cooling systems. While forecasts vary for these new digital loads, the existing electric grid is unprepared for the projected increase in demand in most areas of the country. As we have seen with crypto mining, unconstrained electricity demand from data centers threatens to raise electricity rates for others, increase pollution, and undermine climate goals.

For nearly two decades, electricity demand was fairly flat. The resurgence of manufacturing of batteries, solar panels, and semiconductors in the U.S. over the last two years and electrification of transportation and buildings contributed to the demand for more electricity, but the rise of artificial intelligence (AI) recently supercharged data center growth far beyond expectations. Data center power demand could double by 2030 to 35 GW, enough electricity to power 40 million U.S. houses, according to RMI and the Federal Energy Regulatory Commission (FERC).

No one knows how much energy is currently consumed by crypto mining in the U.S. because unlike other major energy-using industries in the country, the U.S. Energy Information Administration (EIA) does not collect that information for crypto mining. But in Texas alone, crypto miners requested an additional 39 GW of power by 2027. Now, many crypto miners plan to diversify into AI hosting.

The projected amount of growth in demand for electricity from digital loads could stymie grid decarbonization and increase electricity rates, but it doesn’t have to.

Recently, the forecasted surge in energy demand has prompted electric utilities and companies to propose extending the life of coal-fired and gas-fired power plants previously slated for retirement, and propose new methane gas power plants. Coal-fired power plants increased production in West Virginia and Maryland to meet data center demand. In Georgia, data center demand led to an increase in Georgia Power’s usage of fossil fuels. Utilities in North Carolina, South Carolina, Tennessee, Wisconsin, Indiana, Nebraska, and Arizona have recently proposed to substantially increase gas-fired generation in response to rapidly increasing load forecasts due to data centers. In New York, courts recently ruled that the operation of two such gas-fired plants by crypto miners is inconsistent with the state’s climate law.

Northern Virginia, the largest data center market in the world, must grapple with the overwhelming demand while meeting its goal of 100% zero-carbon energy generation by 2050. A study commissioned by the state legislature reported that “a substantial amount of new power generation and transmission infrastructure will be needed in Virginia to meet unconstrained energy demand or even half of unconstrained demand. Building enough infrastructure to meet unconstrained energy demand will be very difficult to achieve, with or without meeting the Virginia Clean Economy Act (VCEA) requirements. New solar facilities, wind generation, natural gas plants, and increased transmission capacity would all be required to meet unconstrained demand, and the number of projects needed would be very difficult to achieve.”

Regulators and utility companies must take proactive steps to manage the energy demands of data centers and crypto mining operations. Failure to do so could lead to higher electricity costs for families, increased strain on the grid, and setbacks in climate goals.

Utilities and regulators have proposed new tariffs and rate structures to protect residential and small business customers from the rising costs associated with data center energy demands. Additionally, they are considering other strategies to strengthen the grid, expand clean energy infrastructure, and continue to reduce reliance on climate-harming and locally-polluting fossil fuels. We are beginning to see utilities propose large load tariffs in fossil-heavy places like West Virginia, Kentucky, and Indiana to effectively balance these interests. Earthjustice attorneys will continue to appear before Public Utility Commissions to protect residential and small business owners and to ensure that clean energy remains a key consideration in regulators’ decisions.

Many states that initially welcomed data centers and crypto mining are reconsidering tax breaks and incentives that encouraged massive facilities in their communities. Host communities suffer from increases in local air and water pollution, electronic waste, and excessive noise pollution, as well as increased electricity costs. In several states with a large number of data centers, such as Virginia and Georgia, state legislators introduced legislation to put guardrails on or completely halt tax breaks for data centers and crypto mines. Connecticut and South Carolina legislators also debated reigning in tax breaks and discount electricity for data centers.

Regulators and utilities must incentivize data centers to manage their demand, improve their energy efficiency, and bring new clean energy online to power their operations. Any local and state economic incentives should be tied to performance-based energy waste reduction, clean energy procurement standards and good jobs. In the future, data centers powered by clean energy could contribute to grid resiliency and reliability as ACEEE and E3 detail. Sierra Club recently published a report, Demanding Better, that calls on leading tech companies, manufacturers, and electrifying industries to implement best practices to not delay the clean energy transition.

What can regulators and utilities do right now?

Establish Terms for Large Load Customers to Protect Other Customers and the Grid

As local governments, public utility commissions, and utility companies grow concerned about the environmental and energy implications of the booming data center market, some seek increased regulation, special tariffs and terms, and temporary moratoriums to protect customers and not overwhelm the grid.

Earlier this year, utility AEP Ohio filed a proposed tariff seeking to address “unprecedented load growth from data centers” with new terms specifically for data centers and also crypto miners such as long-term contracts, exit fees, demand charges, and minimum purchase requirements, whether they use it or not. A recent tariff settlement in Indiana for large load customers specifically includes protections for other customers, works toward a “clean energy transition” tariff, and includes commitments to further grid-enhancing technologies and analytical tools that maximize the efficiency of the transmission system, among other protective provisions. The AEP Ohio proposed tariff sought to pause service connection requests to evaluate whether sufficient power exists and how other customers might be adversely impacted. Some grid operators have instituted similar pauses and studies in their large load planning processes.

Prevent Skyrocketing Electricity Rates

The immense energy demand of data centers and crypto mining — with costly infrastructure investments and discounted rates offered to those digital loads — often result in higher rates for other customers unless utilities and regulators implement important protections. That is because utilities spend millions on upgrades to the grid to serve data centers and crypto mines. But communities can be left footing the bill when they relocate, or if their actual energy needs are less than they projected. Crypto mining operations, often housed in shipping containers or pods that can be installed (and removed) quickly, present a unique risk of relocation since they are so mobile.

More traditional data centers also pose this risk, especially if new methane gas plants or other large capital projects are built just to serve data centers. Some companies “shop around” and propose a facility in several different utility service areas, unbeknownst to the utilities.

Some state utilities sought, and commissions approved, protections against the risk of such stranded assets in New York, Idaho, Arkansas, Virginia, and Wyoming. These protections include upfront payment requirements and requirements for large load companies to pay for certain upgrades to protect existing ratepayers from these costs.

Require Clean Energy That Is “New, Near, and Now”

To achieve clean power goals, utilities and regulators should require that companies power their data centers and crypto mines with renewable energy. Many data centers may indicate that they intend to procure energy from renewable sources such as solar and wind. But utility companies will often approve the facility regardless of whether they can serve its demand for electricity while still meeting either the company’s or the utility’s sustainability goals.

In contrast, this summer Nevada Energy and Google sought approval from the Public Utility Commission for the technology giant to pay for electricity generated by a new geothermal project. Such Clean Energy Tariff agreements support deployment of innovative carbon-free energy projects and can reduce costs though economies of scale. Amazon, Google, Microsoft, and Nucor announced similar agreements in other states, but these are voluntary programs.

These tariffs or contracts should ensure the procurement of clean energy that is “new, now, and near.” That means a new supply of clean energy (additionality), with power consumption not exceeding production (ideally, hourly-matching), and that it be easily delivered in the same region (deliverability). Anything less would result in data centers diverting clean energy from the electricity grid, energy that would then be replaced by the increased operation of fossil fuel power plants that should be scaling down and retiring. Proposals for data centers should include the development of sources of new clean energy such as solar, wind, geothermal, and batteries. Companies should not be permitted to use unbundled renewable energy credits and carbon offsets, which have been shown to be ineffective and allow companies to greenwash their operations, and often result in ‘permission to pollute’ in already overburdened communities.

In addition, many data centers rely on dirty diesel generators for backup power, which emit toxic local air pollution including nitrogen oxides, particulate matter, and carbon monoxide. They also generate huge amounts of noise (as do the data centers and crypto mines themselves). Replacing these polluting backup diesel generators with on-site battery storage would not only reduce air pollution during emergencies but also enable data centers to reduce strain on the electric system in times of peak demand.

Implement Effective Demand Response Programs to Protect Families and Small Businesses

Utilities need to be able to reliably predict electricity demand to avoid blackouts. Crypto mines behave unlike any other industrial user, abruptly shutting down when Bitcoin prices fall or power prices spike, or not reducing their electricity use when requested by grid operators when Bitcoin prices are high, for instance. The Texas state grid operator warned that crypto miners “exhibited inconsistent behavior during resource scarcity events” that have brought the grid perilously close to failure. Utilities must design demand response programs specifically for crypto miners to not only mitigate these risks, but also ensure that crypto miners lower their electricity use at times of peak demand to prevent blackouts and alleviate pollution from dirty “peaker” power plants in already overburdened communities. Demand response programs must be designed so they do not unfairly compensate data center and crypto mining companies over people, as they have in Texas. This is worsened by the fact that many areas do not offer residential demand response programs, do not adequately compensate for them, or ban demand response projects from participating in wholesale electricity markets.

Without the right incentives, AI and other data centers may not participate in demand response programs, since their business model prioritizes uptime and uninterrupted performance. Demand response programs must be designed specifically for these large digital facilities to ensure meaningful participation to protect families and small businesses during times of grid stress.

One way to minimize grid stress is for data centers to deploy batteries for backup generation (instead of dirty, noisy back-up diesel generators) and to store energy during times of surplus and use that energy later. Well-designed programs that effectively leverage the flexibility of data centers’ loads can improve grid reliability and resilience.

End Electric Utility and Local and State Subsidies for Data centers and Crypto Mines

The public should not subsidize data centers’ and crypto miners’ electricity. For years, state public utility commissions offered data centers and crypto mines subsidies, such as economic development rates, discounted power purchase agreements, and energy service agreements, among others. On top of that, many local and state governments offer data centers and crypto mines major tax breaks. These economic incentives led to huge influxes of data center activity in certain states, notably Virginia, Georgia, and Wisconsin and influxes of crypto miners to Texas, Arkansas, Kentucky, and Georgia. But many of those states are reversing course. The realities of an unregulated Bitcoin mining free-for-all led Arkansas legislators to pass legislation to protect communities from crypto mining just a year after they passed >a and Texas has also passed a statute requiring more transparency from crypto miners to better protect its electric grid. Several state legislatures, including Georgia, Virginia, and New York are working to eliminate unfair subsidies that are not tied to good jobs, adequate environmental protections, and/or clean energy requirements.

Our research found that most utility companies claim that data centers are in the “public interest,” which usually includes an assertion that data centers and crypto mines will create jobs, and not increase energy costs for other customers. In reality, evidence shows that crypto mines and data centers create few good local jobs and increase electricity costs for others. For example, Good Jobs First reported that for every job that data centers create, they cost state and local governments over 2 million dollars. A data center near Grand Rapids, MI promised in 2015 to create 1,000 jobs in 10 years but by 2022 the company had only hired 26 people.

Increase Transparency

Public utility commissions, utility companies, and data center owners and operators must embrace transparency and reject the common practice of big tech companies requiring non-disclosure agreements when they seek to move into town or sign contracts for energy. The public deserves to know what rates other customers pay for energy, and how much they consume compared to other customers in their service territories, especially when host communities bear the burden of increased pollution and costs.

Utility regulators and state legislatures must work together to ensure grid reliability, protect customers from unfair costs, and achieve decarbonization goals in the face of growing energy demand. Technology evolves quickly, and AI may offer many opportunities in the future to improve grid management. But right now, utilities and regulators must act to safeguard other customers and speed the transition to clean energy.

With thanks to the excellent contributions from Victoria Wengler, Summer Law Clerk; Yakun Iris Jiang, Bekenstein Climate Fellow; and George Aniegbunem, Bekenstein Climate Fellow. Thank you also to Caroline Weinberg, Christie Hicks, Sameer Doshi, and Aaron Stemplewicz for their contributions.